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Reintroduction of UK Crown Preference from 1 December 2020

COMPANY DEBT ANALYSER

Reintroduction of UK Crown Preference from 1 December 2020

HMRC enjoyed preference prior to 2002 but then the government decided to abolish thus to bring into line with other western countries.

From December 1st 2020 this preference is reestablished.. So from that date VAT, PAYE and Employees NI will be paid in priority to other unsecured creditors .

Corporation tax and employers NI are still treated as unsecured creditors .

This will have a huge impact in insolvency Both in liquidations but also on Company Voluntary Arrangements (CVA) and administrations .

Prior to December 1st 2020 floating charge holders would be paid in priority to unsecured creditors .

Subject only to amounts due in wages and a small percentage set aside for unsecured creditors .

But now things have changed in that the HM Crown will receive a dividend prior to the floating charge creditor .

Banks and other financial lenders will have to take onto account of debts due to the crown when considering lending to companies.

Normally floating charge assets are in the main the stock and work in progress . So a bank could prior to this change expect to receive a substantial dividend from its sale in an insolvency … .But now this dividend could be severely reduced if the company owes large HM Crown debts .

Company voluntary arrangements will have to take into account HM HMRC claims before unsecured creditors.

So, it seems, the HM Government has again changed the insolvency legislation… as it has done virtually every year since 1973!  Why?………. HMRC has stated that the change is intended to protect public funds and, based on its analysis, ensure that there is an estimated GBP185 million increase in taxes reaching the government.

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