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Government accused of 'cash grab' over company collapses under proposed new rules

PUBLISHED: 10:17 15 July 2019 | UPDATED: 10:17 15 July 2019

Mark Upton, a partner at Ensors, eastern region chair of R3  Picture: R3

Mark Upton, a partner at Ensors, eastern region chair of R3 Picture: R3

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A planned taxman 'cash grab' from collapsed firms has come under fire from East Anglia's insolvency sector.

The Eastern branch of R3 - a trade body for insolvency and restructuring practices - branded government plans to prioritise the repayment of some tax debts to HMRC from insolvencies a 'bad deal' for business and taxpayers.

The proposals - contained in the government's draft Finance Bill - would mean that from April 2020, HMRC would receive extra money out of funds - estimated at around £195m - which would otherwise have been paid to other creditors, including pension schemes, trade creditors, lenders - and employees.

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R3 said the business community and the insolvency and restructuring profession have repeatedly warned government that its proposals pose a threat to access to finance and to business rescue.

R3 Eastern chair Mark Upton said: "While the government has removed one damaging part of its original proposals - unproven tax penalty debts won't be included in HMRC's new priority claims - this is very much a case of the government shooting first and asking questions later. That's not a recipe for good policy."

He argued that the government should have gone 'much further' in scaling back the scope of its proposals.

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"Unlike the earlier, pre-2003 version of this policy, the size of the government's priority claim is uncapped, creating significant uncertainty in insolvencies for lenders, businesses, and others," he said.

"A cap on the age of tax debt eligible for priority status would have been an obvious way to limit the downsides of the proposal. Ensuring that tax debts don't take priority over pre-existing floating charges would have made these proposals much fairer, too."

Mr Upton, a partner at Ensors Chartered Accountants in East Anglia, said the downsides of the policy were "plain to see".

"More money back for HMRC after an insolvency means less money back for everyone else," he said.

"This increases the risks of trading, lending and investing, and could harm access to finance, especially for small and medium-sized enterprises. This means less money is available to fund business growth and business rescue, and, in the long term, could mean less tax income for HMRC from rescued or growing businesses. It's a self-defeating policy."

A consultation on the government's proposals closed in May 2019.

Government is proposing that in insolvency procedures from April 2020, certain debts owed to HMRC, including PAYE (pay as you earn), employee National Insurance Contributions (NICs), and VAT, would be prioritised over debts owed to floating charge holders and unsecured creditors.

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