RSM calls for delay to HMRC’s preferential creditor status

RSM has urged the chancellor to “urgently consider” a twelve-month delay to HMRC’s move to becoming a preferential creditor. According to RSM, the change in status, due to come into effect on 1 December 2020, will have the dual effect of limiting funding and restructuring options for businesses. From the 1 December, HMRC will have a priority preference, meaning it will rank ahead of other creditors, including funders and trade suppliers, in any form of insolvency process. Considering the HMRC arrears currently owed by many companies, RSM said it was “concerned” that this prioritisation will undermine the current rescue culture and directly lead to an increase in corporate failures, with the net receipts to HMRC being “substantially reduced” in both the short and medium term. It comes as RSM has “successfully” used CVAs, combined with new funding, as a tool to restructure businesses, noting it has saved over 2,000 jobs and preserved over £50m of investment in the past three months. In an open letter to Sunak, it has now highlighted the “dire consequences” of HMRC’s move and the risks to “vast swaths of UK businesses already struggling to stay afloat”. It argues that a delay in implementing this legislation will “allow businesses more time to put in place restructuring and funding facilities, thereby enabling them to survive and contribute to the UK’s economic recovery”. RSM added that the alternatives will be more insolvencies and administrations with higher job and financial losses. Damian Webb, partner at RSM Restructuring Advisory LLP, said: ‘Many organisations which would have been considered sound businesses models up until March, now find themselves exposed to the most unpredictable market conditions we have seen in a generation. “Our concern is that HMRC’s planned preferential creditor status will severely constrain the restructuring options, such as CVAs, for struggling businesses and limit their access to finance.” He added: “Consequently, we believe the legislation will be counterproductive as by limiting funding and rescue options, we will see a raft of businesses fail with minimal returns to creditors. This will only accentuate the cost to the Treasury with the loss of productive tax paying businesses and employees and an increased dependence on state support. “No sector has been more affected by the Coronavirus pandemic than the consumer facing businesses. The Chancellor’s measures to date are to be commended, however HMRC’s preferential creditor status needs to be delayed to ensure that all the Government’s support is not wasted.”