With all eyes still firmly fixed on the IR35 contents of the Budget (which post-April 2020 could cause more ContractorUK readers to have to read up on closing a company, here and here), it’s easy for contractors to miss another section of Red Book 2018 which could have a significant bearing on them, writes Gareth Wilcox, director at Opus Restructuring & Insolvency.
Another reason it may have gone under your radar is that it accounted for only a single line in the chancellor’s speech (“We’ll make HMRC a preferred creditor in business insolvencies to ensure that tax which has been collected on behalf of HMRC — is actually paid to HMRC”).
But you really cannot afford to overlook this throwaway line. Because it is a vow to elevate HMRC in the order of priority on a company’s insolvency. This is due to bite from April 2020. So with IR35 reform hitting then as well, it really will be an All Fools’ month PSCs may take personally.
The Order of Priority
The Order of Priority refers to the order in which the remaining funds/assets are distributed in an insolvent liquidation (i.e. one where it is recognised that there is, or is likely to be, insufficient assets to pay all creditors in full).
Broadly speaking the order of priority (following the payment of the costs and expenses of the insolvency process itself) is:
- Liabilities to a creditor holding a secured charge on a specific asset (or category of asset);
- Liabilities to preferential creditors;
- Liabilities to secured creditors holding a floating charge;
- Liabilities to all other unsecured creditors.
Click here for the complete article in ContractorUK.