Home Business News Protecting taxes in insolvency is it bad for business?

Protecting taxes in insolvency is it bad for business?

27th Feb 19 6:45 am

This appears to be nothing more than the Treasury seeking to gain preferential status again, after giving it up in 2003. The moral arguments raised in it carry no weight when the government has at the same time ruled against giving preferential status to pre-paying consumers in their response to the Law Commission report (the response was helpfully released by the government between Christmas and New Year).

Aside from this, it will also have a direct impact on a significant part of British business.  Although the Treasury claims it will only net £185m of additional taxes, it will impact on all companies that use asset based lending to support their businesses (mostly the SME market).

As the consultation document shows, the new preferential debt will rank ahead of any floating charge creditor (e.g., an asset based lender), necessarily therefore reducing the amount any asset based lender would lend to its customers. The present proposal is that the preferential status is for all unpaid taxes without limit, including interest and penalties.

This means any ABL will need to undertake a thorough review of all tax matters (going back 21-years) or obtain insurance to cover this risk, and will not be paid until HMRC has confirmed to the insolvency officeholder that it has been paid in full (something it has never previously been able to provide) before the ABL receives any payment for its secured debt.

Both points would obviously impact on the amount any ABL would be willing to lend, as well as the fees associated with it. The fact this change is being proposed at a time when all businesses are having to stock pile raw materials exacerbates this issue even more.

It appears little investigation has been undertaken to see how many companies would fail if their facilities were withdrawn or reduced, or how tax revenue would be affected by these failures.

In its present form, we do not believe the suggestions contained in the consultation support UK PLC.

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