The Draft Finance Bill 2019 states that there will be a limited return to crown preference for certain taxes from 6 April 2020.

HMRC’s previous preferential status was abolished in 2003 (in exchange for Prescribed Part distributions). The reinstatement of the status will affect all insolvencies after 6 April 2020.

To implement the change, Schedule 6 of the Insolvency Act will need to be amended to cover “certain tax debts”. The preferential status is limited in that HMRC will become only a “secondary” preferential creditor (below current existing preferential creditors and fixed charge holders). The status will apply to the following:

➡ VAT

➡ A “relevant deduction” (to include PAYE)

➡ Student loan repayments

➡ Employees NIC

➡ Construction Industry Scheme Deductions

There is no cap or time limit on the claims. Penalties or interest arisen from “certain tax debts” will not rank as preferential. The new rules will affect both business and personal insolvencies.