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HMRC’s new creditor status – how will it affect you?

From 1st December, under the Finance Act 2020, HMRC will regain its status as a ‘preferential creditor’ meaning it will be repaid certain outstanding taxes, including Employees’ PAYE and National Insurance Contributions, VAT and CIS, ahead of lenders’ floating charges and suppliers if a business becomes insolvent.

What does HMRC’s creditor status mean for you?

This means that in an administration or liquidation, HMRC will move up the rankings of who gets paid out first, jumping ahead of floating charge and unsecured creditors, including the company pension scheme and company’s suppliers and other customers.

Previously HMRC were paid alongside unsecured creditors. HMRC will remain an unsecured creditor for corporation tax and any other taxes owed directly by a company. The legislation does not include a cap on the age of tax debts that can have preferential status.

Currently, employees and the Financial Services Compensation Scheme (FSCS) are the only preferential creditors in an insolvency.

HMRC have stated that 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”.

The new legislation will mean that lenders will have to consider very carefully whether to lend to a company – floating charge finance will below HMRC’s claim from 1st December, meaning that provision of this type of finance will become more expensive and harder to come by. Floating charge finance relates to funds borrowed against changing assets such as stock or work-in-progress

This is another blow to companies who are already trying to stay afloat as a result of the COVID19 pandemic – the government has made the process of rescuing struggling businesses more difficult and more complex as a result of this legislation.

This new legislation seems to be key in the timing of the announcement that the Arcadia Group has collapsed into administration – HM Revenue & Customs missed out by a matter of hours from becoming a key creditor in the insolvency process.


Every month we publish a range of blogs that give you access to information from experienced accountants.

If you would like a no obligation discussion about how we can help you and your business, please feel free to contact the team on 01992 444466.  We’re accountants for business and we’re here to help you grow.

We hope this information helps you and we are here for you during this difficult time. We will continue to keep you updated as the Government releases new information. Our business contingency plan is in place and we will do everything we can to support our clients during this uncertain period, please do not hesitate to contact us here if you have any concerns or queries.

Visit our COVID19 Business Hub for more information


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