Budget should ‘raise alarm bells’ for creditors

The announcement in this week’s Budget that HMRC is to partially regain its preferred creditor status in business insolvency has raised alarms bells, according to the insolvency and restructuring trade body R3, which warns that it could be a potentially retrograde and damaging step to UK plc.

R3 believes that, if not thought through carefully, the move could amount to a tax on creditors, including small businesses, pension funds, suppliers, and lenders, and would reverse a status quo that has been encouraging business rescue since 2002. It may also make borrowing harder for small businesses.

R3 Midlands chair Chris Radford, a partner at Gateley in Nottingham, said: “Here in the Midlands, R3’s members report that HMRC could do more to engage actively in insolvency procedures, and at an earlier stage. It has a wide-ranging toolkit to help tackle abuse and evasion, which could be used more fully, instead of forcing its way to the top of the queue through legislation.

“HMRC considers itself to be an ‘involuntary creditor’ of businesses, because it cannot choose which companies to engage with. However, all suppliers to businesses have to take commercial risks, and this Budget announcement will hugely increase the risks taken by small enterprises trying to do business.”

R3 says it welcomes Government action in recent months to improve and strengthen the UK’s business rescue framework, but the body believes that this announcement risks throwing away much of the recent progress that has been made.

Radford added: “We hope that the Government will reconsider this move and listen to the concerns of the insolvency and restructuring profession as it consults on the issue over the coming months.”