On 1 Dec 2020 the UK tax office (HMRC) will re-receive a super priority in all external administrations. Originally it was slated to start in 25 days time, but this has been pushed back. I feel for my fellow insolvency professionals over in the UK – please reach out if you’d like to share your thoughts.
So what is this superior priority, or, as their calling themselves, a ‘secondary preferential creditor’:
- the priority grants the HMRC a priority over all floating charge creditors and unsecured creditors. Note: a floating asset includes things like stock, debtors, physical cash. Does not include fixed assets like PPE, property, etc.
- it applies only to the following taxes: GST-equivalent, PAYG, income tax, employees national insurance contributions and Construction Industry Scheme deductions
- it does not apply to corporate tax or employer national insurance contributions
- insolvency practitioners and fixed charge creditors retain a higher priority
This will no doubt have disastrous and serious consequences for financial lenders and unsecured creditors.
The UK abolished this priority in 2002, but unfortunately has decided to bring it back in.
Why is this relevant to us in Australia? Because it can very easily come back into effect here.
In 1993 Australia removed the last remnants of the ATO priority, thanks to the Harmer Report (1987-88). Arguing to remove the priority, the report said:
- “STRONG COMMUNITY VIEW” that it should be abolished
- the ATO may allow taxation debts to accumulate without prejudicing its position, and this may disadvantage unsecured creditors
- the ATO had no incentive to recover payment in a commercial manner
- the tax debts are relatively insignificant to Government revenue, but may be critical to unsecured creditors
- the abolition would be insignificant to Gov revenue
- there would be a reduction in litigation
- other public policy reasons
I for one, will be loud and proud in stopping any similar moves here in Australia.
Let me know your thoughts in the comments.
#SVVoidables #SVVoidables100 #tax