(asked on 25th January 2021) - View Source

Question to the HM Treasury:

To ask Her Majesty's Government what assessment they have made of the cumulative impact on business (1) lending, and (2) cashflow, of the extension of secondary preferential creditor status to HMRC in the context of (a) the changes to the insolvency regime brought in by the Corporate Insolvency and Governance Act 2020, (b) the increase of the maximum value of the prescribed part to £800,000 on 6 April 2020, and (c) the value of taxes deferred under the VAT deferral scheme.

Answered by
Lord Agnew of Oulton
This question was answered on 8th February 2021

The recent reforms to HMRC’s creditor status for certain debts ensures that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers, but held temporarily by the business, go to fund public services as intended, rather than be distributed to other creditors.

This measure is not expected to have a significant impact on the lending market or wider economy. The change is forecast to raise up to £255 million a year. To put this into perspective, bank lending to small and medium-sized businesses alone was £57 billion in 2019.

In 2020/21 this change is expected to raise an additional £40 million for the Exchequer. With regards to cash flow, the Government deferred an estimated £30 billion of VAT due during 2019/20 that can be paid off by instalments, interest-free, via the VAT New Payment Scheme as announced in the Winter Economy Plan.

At the same time, via changes to the Corporate Insolvency and Governance Act, there has been a moratorium on winding-up petitions by creditors, including HMRC. The changes to the Insolvency Act to increase the cap on the prescribed part is an overdue reform to bring it in line with inflation and has no detrimental effect on any of the other measures mentioned here.

The numerous support measures taken by the Government were put in place to prevent the failure or closure of viable businesses. The scale of these support measures far outweighs the recoveries that the Government would receive via HMRC’s preferential claims in insolvency.

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