Many still believe that HMRC has preferential status for any taxes owed in the event of an insolvency, but in fact this was abolished several years ago. However, in the briefest of mentions in his Budget, the Chancellor referred to 'protecting your taxes in insolvency'.
In effect, the Chancellor has wound back the clock. From 6 April 2020, HMRC will once again have preferential status for taxes collected and held by businesses on behalf of taxpayers (including VAT, PAYE income tax, employees' National Insurance Contributions and Construction Industry Scheme deductions).
How will this impact lenders and directors?
While the details are yet to be released, lenders will need to carefully consider how this may affect their recovery prospects in the event of an insolvency.
Such preferential status for HMRC will clearly reduce the level of potential recovery for a lender under its floating charge and more than likely also reduce the level of funds made available for unsecured (general trading) creditors. Ensuring borrowers stay up-to-date with the payment of these taxes is going to become increasingly important.
Directors will also now need to be aware that the corporate veil may not protect them from unpaid taxes any longer. Directors (and other persons) involved in tax avoidance, evasion or phoenixism, will be jointly and severally liable for the company tax liabilities, where there is a risk that the company may deliberately enter insolvency (Royal Assent bill 2019/20).
For further information or advice on this, please contact Graham Bushby.