HMRC, the UK’s tax authority, has recently announced that it has collected an additional £14.4 million in tax from insolvencies over the past two tax years since regaining its ‘preferential creditor’ status. This news comes as a positive development for the government, as it shows that their decision to grant HMRC preferential status has been beneficial in terms of tax collection.
For those who are not familiar with the term, a preferential creditor is someone who is given priority over other creditors in the event of an insolvency. This means that HMRC is now at the top of the list when it comes to getting paid from the assets of a company that has gone bankrupt. This change in status was introduced in the Finance Act 2020 and came into effect in December 2020.
Before this change, HMRC was considered an unsecured creditor, meaning that it was at the bottom of the list when it came to getting paid from the assets of a bankrupt company. This often resulted in HMRC not receiving the full amount of taxes owed to them, as other creditors, such as banks and suppliers, would be paid first. This not only had a negative impact on the government’s revenue but also on the overall economy.
However, with the new preferential status, HMRC has seen a significant increase in the amount of tax collected from insolvent companies. In fact, the £14.4 million collected over the past two tax years is almost double the amount collected in the previous two years when HMRC was an unsecured creditor. This is a clear indication that the decision to grant HMRC preferential status was the right one.
The increase in tax collection is also a positive sign for the economy as a whole. When companies go bankrupt, it not only affects the government’s revenue but also has a ripple effect on the economy. Suppliers and employees of these companies often suffer losses, and this can have a knock-on effect on other businesses. By ensuring that HMRC is paid first, the government is protecting the interests of all stakeholders involved.
Moreover, this change in status has also had a positive impact on HMRC’s relationship with other creditors. In the past, HMRC was often seen as a hindrance by other creditors, as they would have to wait longer to receive their payments. However, with the new preferential status, HMRC is now seen as a partner in the insolvency process, working towards a common goal of maximizing the amount of money that can be distributed to all creditors.
It is also worth noting that this increase in tax collection is not just a one-time occurrence. As more companies go bankrupt due to the economic impact of the pandemic, HMRC’s preferential status will continue to bring in more tax revenue. This will not only help the government in its efforts to recover from the financial impact of the pandemic but also ensure that HMRC is able to continue providing essential services to the public.
Some may argue that granting HMRC preferential status is unfair to other creditors. However, it is important to remember that HMRC is not just any creditor. It is the government’s tax authority, responsible for collecting taxes that fund essential public services such as healthcare, education, and infrastructure. By giving HMRC preferential status, the government is simply ensuring that it can continue to provide these services to the public.
In conclusion, HMRC’s collection of an additional £14.4 million in tax from insolvencies since regaining its preferential creditor status is a positive development for the government, the economy, and all stakeholders involved. This change has not only increased tax revenue but also improved HMRC’s relationship with other creditors and ensured the continued provision of essential public services. It is a clear indication that the decision to grant HMRC preferential status was a wise one and will continue to bring in more tax revenue in the future.
