Prioritising HMRC over other creditors in insolvencies will have a ‘negative impact on the UK’s economic growth’, experts have warned Chancellor Sajid Javid.
The warning was issued in a letter from 11 business organisations and insolvency experts to the Chancellor.
Signatories of the letter include the Institute of Chartered Accountants in England and Wales (ICAEW), the Institute of Chartered Accountants of Scotland (ICAS), the Insolvency Practitioners Association (IPA) and the City of London Law Society (CLLS).
The letter says that the proposed change will make it more difficult to rescue businesses. According to the organisations, it will also reduce access to finance for small businesses, increase the harm done to other businesses in insolvencies and could ultimately result in losses to the Exchequer.
Writing in the letter, the organisations said: ‘While we understand that the government wishes to increase the value of taxes repaid in the event of insolvency, there is a serious risk that the wider costs of the government’s approach will outweigh any expected benefit.
‘This proposed policy would reverse successive governments’ attempts to encourage a culture of business rescue in the UK, and would undermine the government’s recent work to strengthen the UK’s insolvency and restructuring framework.’
The proposal, which was announced in the 2018 Budget and is now included in the draft Finance Bill, will see a change implemented from 6 April 2020. This would entail taxes, including the VAT, Pay as You Earn (PAYE) and employee national insurance contributions (NICs) owed by an insolvent company to be paid to HMRC ahead of floating charge holders and unsecured creditors.