HMRC’s Creditor Status

Prior to the Enterprise Act of 2002 HMRC was treated as a preferential creditor within a liquidation thereby allowing them to rank ahead of other unsecured creditors.

Following the 2002 Act HMRC lost this status.

In the Budget of 2019, Phillip Hammond sets out that from 6 April 2020 HMRC will once again be a higher-ranking creditor, allowing it to recover outstanding tax ahead of unsecured creditors. Although HMRC will not be restored to the status that it had pre-Enterprise Act 2002 it will be given greater priority to recover outstanding tax ahead of unsecured creditors.

It is important to note that this reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE Income Tax, employee NICs and Construction Industry Scheme deductions).

The rules remain unaltered for taxes owed by businesses themselves, such as corporation tax and employer NICS.

The implications of the change are that going forward unsecured creditors in a liquidation may find that any distribution to them by a liquidator may be lower than what they may previously have expected.

For more information of the implications that this change could have on your business please contact Raheel Khan.