BBM Solicitors Comment on 2018 Budget

Readers may have missed (we almost did too!) a detail slipped into the chancellor’s budget earlier in the week: a small change that could make a difference to insolvency practice and outcomes in Scotland.

The chancellor is rolling back the clock:  we appear to be going back to pre 2002 position (before the enterprise act came into force) in one important respect. In Spring 2020 HMRC will become a secondary creditor for taxes held on behalf of employees and customers (for example VAT, PAYE, income tax deducted at source, employee NIC’s and construction industry scheme deductions). In other words they will get paid from any left-over assets, before other unsecured creditors.  In our experience these types of taxes affected often represent the main tax arrears that result in insolvency. It means as a matter of policy, that not only will environmental obligations (see here) and responsibilities be in front of ordinary unsecured creditors, but now the tax man will be back in front of small businesses, pension funds, suppliers and lenders etc. While the technical consultation is to be issued by HMRC, it seems obvious that in many ordinary Scottish liquidations there could be very minimal dividends for unsecured creditors. The treasury research for the budget indicated that the average dividend for such creditors is already only about 4%, and so the idea of an unsecured creditor being engaged in the process (which was previously, policy to encourage) seems very unlikely.

We await further developments, with interest.

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