Accountancy firm Moore has criticised the reintroduction of HMRC’s status as a preferential creditor stating that it could have a “devastating impact” on businesses and their ability to obtain finance.
The decision which is set to come into effect today, 1 December, allows for the HMRC to be granted role as “preferential creditor”, meaning it will be repaid certain outstanding taxes (including Employees PAYE and National Insurance Contributions, VAT and CIS) ahead of lenders floating charges and suppliers if a business becomes insolvent.
The firm said it’s likely the appetite for many kinds of lending will be reduced as the tax authority’s new status will “lessen the chances” of lenders being repaid out of the pot of remaining asset recoveries, if the business becomes insolvent.
Moore went on to state that if lenders raise their interest rates to make up for the increased risk, then “many businesses will have to cut their expansion plans”.
The UK government first announced its intention to revise the status of this act in the 2018 Budget, after previously abolishing it in 2003. Since then the decision has been a point of concern for many voices in the financial sector, with networks such as RSM also urging the chancellor to “consider” a twelve-month delay to the decision.
Chris Tate, director at Moore, said: “The reinstatement of HMRC as a preferential creditor is ill-timed, many businesses are already struggling to survive as a result of lockdown measures. The last thing they need is for rescue funding being harder to come by.
“Both business funders and suppliers are likely to be unwilling to extend credit to businesses, if they think that HMRC will potentially receive most of the funds realised in an insolvency. If suppliers stop supporting struggling businesses, then more jobs will be lost.”