A government plan to grant the taxman preferential status over other creditors when firms go under poses a threat to key financial services for businesses, an insolvency body has warned.
The eastern branch of insolvency and restructuring trade body R3 said the “perverse” plans – confirmed in chancellor Rishi Sunak’s February Budget – will hit business lending and business rescue.
Its chairman, Mark Upton, described the measure as a “badly-timed and ill-considered blow to the UK’s enterprise culture”.
MORE – Government’s business loan plan ‘illogical’ claims frustrated business owner“At a time when businesses are facing economic headwinds, they need the government to help them, not elbow them out of the way. Priority repayment for HMRC in insolvencies will reduce what can get repaid to other businesses, pension schemes, and lenders. Reduced returns to lenders will increase the costs of borrowing and availability of finance, especially in rescue situations,” he said.
From December 1 2020, debts owed to HMRC by insolvent businesses will be repaid in advance of those owed to “floating charge” lenders, other businesses, and pension schemes.
Floating charge lending is a key form of finance for retailers and small and medium-sized enterprises, R3 said, and had become increasingly popular over the last two decades.
The Finance Bill – due to be published on March 19 – is also likely to include new powers for HMRC to make directors and others personally liable for corporate tax debts in situations where HMRC suspects they are using the insolvency framework to avoid tax, or where a director has a track record of insolvency.
Mr Upton, a partner at Ensors Chartered Accountants, said of the policy: “It will damage business lending and business rescue, and will affect jobs, livelihoods and the economy.
“It’s perverse that on the day that the Bank of England has taken steps to boost business lending, the government has taken a step in the opposite direction.”
It was “beyond frustrating” that the Budget confirmed the policy without meaningful changes from what was first proposed, he said. “The plans were first announced in 2018 with no consultation and, since then, there has been near unanimous opposition to them. Business groups and lenders have been clear that the policy will be a short-term gain for HMRC at the expense of a long-term cost for the economy.”
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