Govt dismisses concerns about insolvency tax changes

Govt dismisses concerns about insolvency tax changes

The government has dismissed concerns about the impact of new rules that will see payments to the taxman be prioritised in company insolvencies.

Jesse Norman, financial secretary to the Treasury, said yesterday (October 8) in a written answer to parliament that he doesn’t expect this reform to affect small and medium size companies and the impact on the Pension Protection Fund would also be minimal.

The rules, first published in the Draft Finance Bill 2019-20, are due to come into force on April 2020, and will see some tax debts owed to HM Revenue & Customs be elevated to preferential status in insolvencies.

These debts, which include PAYE income tax, employee national insurance contributions, VAT, and student loan deductions, will be paid before unsecured trade creditors can seek to recover their monies.

FTAdviser reported in September that trade groups warned the reform will harm pension schemes and consumers, but this has been dismissed by the government.

In a joint letter to chancellor of the exchequer Sajid Javid, accountancy, investment and legal trade groups said “while extra money for HMRC in insolvency procedures may appear positive it means less will be going back to trade creditors, pension schemes, and consumers”.

The letter stated: “This will hurt the economy in the long run. Poor returns from insolvency procedures can jeopardise the health of other businesses, can make creditors more likely to vote down rescue proposals, and can trigger further insolvencies.

"The government’s policy increases the chances of this happening.”

Mr Norman noted the Treasury “carefully considered the case for reform prior to announcing this change last year”.

He added: “It is the government’s view that taxpayers can reasonably expect that when they have successfully paid their taxes, these go to fund public services as intended.

“This measure represents a proportionate approach that balances the interests of taxpayers, the Exchequer, and other creditors.”

Regarding the impact on the PPF – the UK pensions lifeboat that acts as a creditor for defined benefit pension schemes in cases of insolvency, Mr Norman said the “reform will not lead to a significant change in recoveries to the PPF compared to current returns”.

He also noted that the government does not expect this reform to significantly affect SMEs’ access to finance or corporate insolvencies.

He added government officials were “engaging with a wide variety of stakeholders to ensure policy changes are well informed and based upon the best available evidence”.

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