Contractors paying HMRC earlier if insolvent

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There are only a few weeks remaining for contractors who work via a Limited Company to have a say on plans to push HMRC up the list of creditors to be paid if a company goes bust.

The consultation period closes on Monday, May 27th. The one single issue that is worrying most PSCs is the elevation of HMRC up the list of creditors.

If the plans go ahead, HMRC will be classed as a Preferred Creditor rather than as an Unsecured Creditor. This would take the organisation’s status back to that it enjoyed before 2002.

This means that HMRC would come second in the queue after ‘secured creditors with a fixed charge’ regardless of how old the tax debts were.

However, insolvency body R3 claims that the proposal, which sets no time limit on the sums owed to HMRC, goes too far. It would actually place HMRC in a better position than it was pre-2002. HMRC was then only able to have preferential status on tax debts that were up to a year old, but if the new rules go ahead, any tax debt will be bumped up the list.

Another key concern that many experts have is that it will give HMRC a greater role in insolvency procedures. It might even mean that HMRC tax officers will have to approve some parts of the insolvency process.

This, in turn, increases the risk of a bottleneck as HMRC already causes delays. If the government does not abandon the plans, R3 would like to see HMRC’s claims being capped.