The Government and HMRC are continuing to seek ways to maximise tax receipts.

The recent Autumn Budget contained two principal changes to the treatment of unpaid tax in an insolvency process.

1) HMRC preferential creditor status

With regard to corporate insolvencies the Government has reversed the principal that HMRC will rank alongside general unsecured creditors in respect of unpaid tax.

From 6 April 2020, when a company enters insolvency HMRC will be treated as a preferential creditor in relation to any taxes collected and held by the company on behalf of other taxpayers, such taxes will include VAT, PAYE income tax, employee NIC and construction industry scheme deductions.

It should be noted that HMRC will not have preferential status for taxes owed by the company itself such as corporation tax and employer NIC.

BM Advisory comments:

This is likely to result in a significant reduction in funds becoming available to unsecured creditors and further disengagement in the insolvency process by unsecured creditors.

HMRC is likely to seek to ensure realisations in an insolvency are maximised, [potentially by the aggressive pursuit of fraudulent transactions], in view of their preferential status and ability to benefit from their preferential status.

2) Tax avoidance

Directors and other persons involved in tax avoidance, evasion or phoenixism will be made jointly and severally liable for company tax liabilities where there is a risk that the company may deliberately enter insolvency.

The legislation will be included in the Finance Bill 2019-20 and will be in force once the Bill receives Royal Assent.

BM Advisory comments:

The lifting of the corporate veil may expose directors and others to personal liability in respect of unpaid tax.

It is likely that HMRC will seek to work closely with Insolvency Practitioners to identify cases that may fall within the clauses of the Finance Bill to maximise the return to HMRC.

BM Advisory has extensive experience in providing restructuring and insolvency solutions across many sectors. If you consider a client could benefit from a free of charge/no obligation meeting with BM Advisory to explore the options available to them or seek further advice on the above, please get in touch.