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HMRC consultation on becoming secondary preferential creditor

The Government announced in last year’s Budget that legislation will be introduced which will see HMRC return as a preferential creditor in insolvency cases. The Government’s stated intention is to ensure that tax collected on behalf of HMRC is actually paid to HMRC.

On 26 February 2019, HMRC launched a consultation in relation to becoming a secondary preferential creditor for certain taxes paid by employees and customers which have not been passed onto HMRC before a business has entered into a formal insolvency event, such as liquidation or administration. These taxes include VAT, PAYE (including student loan repayments), Employee NICs, and Construction Industry Scheme Deductions. HMRC would remain an unsecured creditor for direct taxes such as Corporation Tax and employer NICs.


The current order of priority for distributions within insolvencies:

  1.   Fixed charge holders
  2.   Insolvency practitioners’ general costs and expenses
  3.   Preferential unsecured creditors
  4.   Prescribed Part creditors
  5.   Floating charge holders
  6.   Unsecured creditors
  7.   Interest on unsecured and preferential debts


What will be the effect of this proposal?

This proposal would affect insolvencies commencing on and after 6 April 2020. It would place HMRC, in respect of the above taxes, in front of ordinary unsecured creditors, Prescribed Part creditors, and floating charge holders. Despite the preferential creditor status, HMRC would still remain below other preferential creditors such as the Redundancy Payment Service, hence the use of the term “secondary preferential creditor”.

Therefore, this presents a significant policy change for HMRC and may lessen the recoveries for floating charge holders and unsecured creditors. The final date for responses to this consultation is 27 May 2019.


Follow us on Twitter at @InsolvencyLaw to keep up to date with this change, and with other insolvency-related updates and issues.

You can also contact qualified Insolvency Practitioner and Director, Annabel Whittaker on 0115 9 100 256 or send her an email

Posted on March 5, 2019

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