Tax professionals have criticised a new law set to be imposed on 1 December, which places the HMRC in a higher position on the creditors list when dealing with insolvencies, as they fear it will lead to further economic damage.
According to the Financial Times, this will allow the HMRC to “have more say” in deciding which creditors get paid first when a company fails.
The changes, set to be enforced next month, apply to unpaid VAT, income tax, employee’s national insurance, student loan deductions and construction industry scheme deductions, but it is not applicable to corporation tax.
It is believed that the law which was originally revealed in the 2018 budget is expected to raise an additional £185m annually for the treasury, however tax bodies such as the Chartered Institute of Taxation (CIOT) have urged for a halt to the policy as its set to be introduced at the same time government backed Covid-19 support measures such as the Job Retention Scheme end.
CIOT told the FT: “It could lead to an increase in insolvencies at a time the economic background is already bleak because of the coronavirus pandemic. The danger is HMRC are more hawkish as creditors in triggering insolvencies because they know they’re going to be preferred [when it comes to the distribution of company assets].”
It added: “It’s inevitable that will happen, HMRC have a statutory responsibility to collect tax. It wouldn’t be whimsical behaviour on their part.”
Accountancy today have contacted HMRC for a comment