From April 2020, HMRC will become a secondary preferential creditor in insolvency proceedings, giving them priority in the recovery of VAT and certain other debts owed to them.


Currently, taxes paid by employees and customers do not always go to funding public services if the business temporarily holding that money goes into insolvency before passing the tax on to HMRC. Instead, the money often goes towards paying off debts to other creditors.

A new measure will amend insolvency legislation to move HMRC up the creditor hierarchy for the distribution of assets in the event of insolvency by making HMRC a secondary preferential creditor in respect of certain tax debts held by a business on behalf of their customers and employees

In Budget 2018 the government announced that it will give HMRC the power to protect the payment of certain tax debts paid by employees and customers including:

  • VAT
  • PAYE (including student loan repayments)
  • employee National Insurance contributions
  • Construction Industry Scheme deductions

HMRC will remain an unsecured creditor for taxes levied directly on businesses, such as Corporation Tax and employer National Insurance contributions.

A three-month consultation exercise on the measure ended in May 2019.

When will the change come into force?

Legislation to implement the necessary changes to the Insolvency Act 1986 and the Bankruptcy (Scotland) Act 2016 will be introduced in Finance Bill 2019-20.

The Government has now published draft clauses for the Bill and the legislation is open for consultation until 5 September 2019.

The measure will come into effect on 6 April 2020.

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