Budget 2018 – HMRC returned to preferential creditor in cases of insolvency

It’s been a year full of economic and political challenges for all businesses. Including several, high profile insolvencies. The effects of which have been felt far and wide across the small business community.

Therefore, I’m sure we all had an eye on the budget last week! That said, I’m not sure we all felt too assured by Chancellor Philip Hammond’s statement that “The era of austerity is finally coming to an end”

One of the changes that did catch my attention was the reversal of a 2002 change to the insolvency regime where HMRC was demoted from its position as preferential creditor. It was instead ranked alongside other unsecured creditors.

Currently, several creditors other than HMRC have a higher priority claim on the assets of an insolvent company but from April 2020 however, HMRC will have greater priority to recover taxes paid by employees and customers. According to the government, this will ensure that an extra £185m in taxes already paid each year reaches the tax authority.

However, there are valid concerns around this. Namely that the HMRC could choose to become more aggressive with enforcement, given their renewed status, which in turn would lead to an increase in company insolvencies.

Given that we currently have an increasing trend in corporate insolvencies that saw a rise of 9% in Q3 compared to Q2 2018, and 19% compared to Q3 2017, this may add to the problem.

Only time will tell.

It does highlight once again the need for businesses, large and small to create robust financial administration systems.  A successful credit control process that limits your exposure to risk and keeps your all important cash flow healthy, can be the difference between growth and insolvency.

If you would like to discuss your credit control process or have issues with late payments, we’d be happy to discuss your situation and guide you towards a solution.