HMRC to be preferential creditor in insolvencies

The government has announced the first public consultation on plans to make HMRC a secondary preferential creditor for specific tax debts paid by employees and customers on the insolvency of a business.

Before 2003 the Revenue was a preferential creditor for some taxes but the Enterprise Act 2002 reduced its status to that of non-preferential creditor for all forms of tax. Since then the department claims that losses to the exchequer from insolvency have increased.

The measure will move HMRC up the creditor hierarchy ahead of pension schemes trade creditors and lenders. So it will be ahead of holders of floating charges – mainly financial institutions – and other non-preferential unsecured creditors but remain below holders of fixed charges – also primarily financial institutions – and higher-ranking preferential creditors.

The measure applies to VAT PAYE (including student loan repayments) employee National Insurance and construction...