From 1 December 2020 onwards, HMRC will be treated as a preferential creditor of companies for certain taxes including PAYE, VAT, employee NICs and Construction Industry Scheme deductions. In the event that a company enters administration or liquidation, HMRC's claim for these taxes will rank ahead of any floating charge holder.
This reflects recent changes made to the Finance Act 2020.
The impact on floating charge holders
With an increased number of businesses experiencing financial difficulties in the current economic climate, lender-led debt restructurings are becoming more prevalent. Such restructurings are commonly achieved by the lender releasing, capitalising or amending its debt, each of which will have tax consequences for the borrower group.
This note sets out a brief summary of some of the key UK tax points to be aware of, and pitfalls to avoid, when undertaking these debt restructurings.
Debt waivers
Following on from part 1 of our predictions for 2021 for the UK restructuring market part 2 looks at CVAs, directors duties and HMRC and insolvencies.
We had hoped to cover off everything in 2 parts, but 2021 looks to be a busy year so we will publish the final part of this series next week.
Company Voluntary Arrangements – the continued evolution of the CVA
The COVID-19 crisis is causing financial difficulties for numerous companies. Often, bankruptcy seems to be the only escape. Based on the characteristics of US Chapter 11 proceedings, Swiss restructuring law was revised in 2014 so that judicial composition proceedings could be made more effective.
1.1 Corona Relief Fund (for more details check out our legal insight)
In measures that came into effect from 1 December 2020, the Finance Act 2020 dictates that for certain debts, HM Revenue & Customs (HMRC) will now rank much further up the chain of creditors when a company enters administration or liquidation. This is a radical change to a process that had previously ranked HMRC as an unsecured creditor for nearly 20 years.
What was the old system?
For those of you hoping this article would be about chess or the wonderful Netflix drama of the same name, you will be sadly disappointed. If you came here for insolvency news then keep reading. This article will focus on Her Majesty’s Revenue and Custom’s (HMRC’s) “gambit” to gain an advantage over other creditors through the return of the “crown preference” from 1 December 2020. This article explores what HMRC’s status as a secondary preferential creditor means and its implications for insolvency practitioners and others going forward.
Status as of 17/02
Table of Content
- 1 Financial Support Measures
- 2 Capital Markets
- 3 Employment
- 4 Real Estate & Construction
- 5 Tax & Duties
- 6 Corporate, M&A
- 7 EU & Competition
- 8 Courts and Authorities
- 9 Healthcare
- 10 Insolvency & Restructuring
- 11 Insurance
- 12 Intellectual Property
- 13 Telecom & Data Protection
- 14 Other
1 Financial Support Measures
In response to the economic crisis caused by the COVID-19 pandemic, lawmakers very quickly started working on improving the legal framework to enhance existing and develop new restructuring instruments. Contrary to expectations, not that many restructurings actually took place in 2020, likely because of support made available to businesses.
”The Supreme Court has today handed down its judgment in R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) [2021] UKSC 2, an important decision relating to the Serious Fraud Office’s powers to issue notices on foreign companies under section 2(3) of the Criminal Justice Act 1987. In this article, David Savage, Head of Financial Crime looks at the case, and what the ruling means for the SFO’s investigative powers.
Summary