Submitted by Sestini
| on Mon, 01/13/2020 - 11:13 | In Accounting and systems
, Corporation Tax
Guest blog by Samantha Hawkins, founder of Hawkins Insolvency
If you are working on a regular basis with tax and finance professionals, such as the team at Sestini & Co Group, you will be well positioned to have a good understanding of your company’s financial situation as it stands now and looking forwards.
Having an understanding, however, of the impact of insolvency is useful for you as a company director, whether it affects your company directly or whether you are a creditor impacted by a debtor of your company, who is facing an insolvency event. It is a requirement of the Companies Act 2006 that directors carry out their duties of care to the company shareholders and to their creditors. This is known as the Enlightened Shareholder position.
Creditors are not all equal
The terms ‘secured’
and ‘unsecured’ creditor and even ‘preferred’ creditor may be familiar to you.
Creditors are people to whom the company owes money. Their status is particularly
important when the company enters a formal insolvency event, because there is a
strict hierarchy of priority laid down in the Insolvency Act 1986.
customers’ payment terms and ensuring that they do not fall too far behind will
help to ensure that your cash flow is not negatively impacted by someone else’s
insolvency and that you can spot difficulties before they affect your trading.
When large organisations become insolvent, the chain of suppliers affected is
typically long and can push many of those lower down in the chain into
- Secured creditors are the most likely to receive some or even
all of their funds in the event of an insolvency. Banks and other financial
lenders are usually in this category. An
example is a mortgage or a fixed and floating charge registered at Companies
- Preferred or preferential creditors are those who come between secured creditors
and unsecured creditors. Typically these are employees, however there have been
periods were HM Revenue and Customs have held preferential creditor status.
- Unsecured creditors are towards the lower end of those likely to
receive their monies back should a company enter insolvency. Suppliers and
contractors typically fall into this class.
HMRC are currently in this class.
- Shareholders are even less likely to receive their monies and would only
receive funds should the other creditors have been paid, unless of course the
company is in Members’ Voluntary Liquidation.
HMRC set to become a preferential creditor
HMRC is set to transfer from unsecured creditor to preferential creditor from April 2020, for unpaid PAYE, National Insurance Contributions and VAT. They will remain an unsecured creditor for Corporation Tax.
This change to HMRC
status is also an important distinction if you are a supplier, a contractor or
shareholder — as you sit as an unsecured creditor or below, you are less
likely to receive monies than previously. It is also an important distinction
if you are running a company and in the unfortunate circumstance of insolvent winding
up. So the caveat is, know who you are
The move is part of
the government’s general drive to recover as much as possible in terms of taxes
owed from organisations and individuals.
Some business bodies are
concerned about HMRC’s reversion to preferential creditor as many owner
managers are not au fait with their numbers and may not give the letters from
HMRC the time they deserve. Once HMRC have made a determination on the tax due,
it is very difficult, not to mention costly to change their minds.
We would always
recommend working with a tax specialist such as Sestini & Co to ensure that
taxes you are being asked for have been calculated accurately, and to dispute
them should that be necessary. HMRC can be very zealous and determined when
chasing taxes; ensuring that the tax calculations are correct could be the difference
between you continuing to trade and losing the business.
If you are a company
facing financial difficulties, it’s important to ensure that you work with an
expert in insolvency, a regulated Insolvency Practitioner, such as Hawkins
We will look at your
company’s situation and determine what routes are open to you. We may be able
to broker informal agreements with creditors and to ensure that the company
continues to trade. At worst it may need to go into receivership or Company
Voluntary Liquidation. In all cases we will work with you to ensure the best
outcome for you, your company and your creditors.
Get in touch
Find out more about the work we do at Hawkins Insolvency on our website https://www.hawkinsinsolvency.co.uk/, email us on email@example.com or call 01934 862877.