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Question for Treasury

UIN HL11555, tabled on 19 November 2018

To ask Her Majesty's Government what economic analysis they used to support the decision in the 2018 Budget to make HMRC a secondary preferential creditor in insolvency.

Answered on

3 December 2018

The government does not expect this reform to significantly impact access to finance or the cost of borrowing.

The independent OBR did not make any adjustments to their economic forecast in regard to this measure.

At Budget 2018, the Government published the following assessment:

Type of Creditor

Explanation and Examples

Current Average Percentage of Debt Recovered in Insolvency

New Average Percentage of Debt Recovered in Insolvency

  1. Fixed charge secured creditors

Lenders to whom the business granted security, primarily financial institutions. When a fixed charge is provided, the company loses the right to sell or trade the item. These assets tend to be fundamental to the business; for example, machinery, property or vehicles.


36% (unchanged)

  1. Insolvency practitioners

Fees for overseeing the process.

As charged

As charged

  1. Preferential Creditors

Claims by the Redundancy Payment Service (RPS) and Financial Services Compensation Scheme (FSCS) on behalf of employees and customers (to statutory limits); and from 2020, HMRC will be a secondary preferential creditor (below the RPS and FSCS) for Value-Added Tax, Employee National Insurance contributions, Pay-As-You-Earn Income Tax and Construction Industry Scheme Deductions.


83% (unchanged) for existing preferential creditors; 14% for HMRC

  1. Floating charge secured creditors

Lenders for whom the company is not granted security, primarily financial institutions. This tends t be the case in relation to assets that are not fixed; for example, stocks, raw materials, fixtures and fittings or cash.


Less than 36%

  1. Unsecured creditors

All remaining creditors, including HMRC debts levied directly on businesses; and debts owed to suppliers, contractors, landlords and customers.


Less than 4%

  1. Shareholder

Only get paid if all the above creditors are paid in full.



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