HMRC’s preferential creditor status – what this means for small businesses
HMRC will regain its status as a preferential creditor for insolvencies that commence on or after 6 April 2020 under legislation expected to be introduced in the Finance Act 2020. In a nutshell this means that HMRC will move up the rankings of who gets paid out first when a company falls into administration or […]
HMRC will regain its status as a preferential creditor for insolvencies that commence on or after 6 April 2020 under legislation expected to be introduced in the Finance Act 2020. In a nutshell this means that HMRC will move up the rankings of who gets paid out first when a company falls into administration or liquidation.
HMRC states this change will “ensure that when a business becomes insolvent, more of the taxes paid in good faith by that business’ employees and customers will fund public services, rather than these being distributed to other creditors such financial institutions”. Under the proposed legislation, HMRC’s priority claim on tax debts would be uncapped, and resurrection of its preferential creditor status is expected to raise approximately £195 million annually.
What does this mean for small businesses?
As it stands, employees and the financial services compensation scheme are the only creditors in an insolvency. However, moving forward HMRC may be one of the largest creditors as it will receive funds that would previously have been shared equally among unsecured creditors. This means that if you have a customer that enters insolvency after the 6th April 2020, the chances of you retrieving money owed becomes slimmer as you move further down the queue for payment. This change in creditor status will also undoubtedly result in changes to the credit policies of lenders and by consequence the availability of funding, particularly in the small to medium-sized enterprise (SME) market.
Research has shown that the longer an invoice is left unpaid, the more difficult it becomes to collect; acting quickly in response to these situations is proven to have a higher success rate of obtaining funds owed. Therefore, if you have any outstanding invoices still awaiting payment, it’s imperative that you act quickly to get ahead of the other creditors, and also ahead of HMRC before the 6th April. If the customer in question is struggling financially, they may also be on the brink of going under, so acting fast to obtain any funds owed should be a top priority for all businesses.
How we can help
Here at Daniels Silverman we understand that acting in a swift, firm and professional manner whilst protecting your reputation is the best way to help you obtain funds owed without damaging your reputation or your relationships with existing clients. We want to ensure you receive money you are owed for goods or services provided, whilst removing the stress that often comes with chasing unpaid debts.
Daniels Silverman are an established, family owned firm who believe in balance. You need a collection agency to be determined and persistent and your customer needs Daniels Silverman to be human and ethical. We are trained to combine the two, treating each case with tenacity, integrity and care.
If you would like to use our services to help you settle any unpaid invoices, you can contact us on 0800 953 3631 or contact us via the website to have a chat to one of our friendly staff members.