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<p>The recent reforms to HMRC’s creditor status for certain debts ensures that when
a business enters insolvency, more of the taxes paid in good faith by its employees
and customers, but held temporarily by the business, go to fund public services as
intended, rather than be distributed to other creditors.</p><p> </p><p>This measure
is not expected to have a significant impact on the lending market or wider economy.
The change is forecast to raise up to £255 million a year. To put this into perspective,
bank lending to small and medium-sized businesses alone was £57 billion in 2019.</p><p>
</p><p>In 2020/21 this change is expected to raise an additional £40 million for the
Exchequer. With regards to cash flow, the Government deferred an estimated £30 billion
of VAT due during 2019/20 that can be paid off by instalments, interest-free, via
the VAT New Payment Scheme as announced in the Winter Economy Plan.</p><p> </p><p>At
the same time, via changes to the Corporate Insolvency and Governance Act, there has
been a moratorium on winding-up petitions by creditors, including HMRC. The changes
to the Insolvency Act to increase the cap on the prescribed part is an overdue reform
to bring it in line with inflation and has no detrimental effect on any of the other
measures mentioned here.</p><p> </p><p>The numerous support measures taken by the
Government were put in place to prevent the failure or closure of viable businesses.
The scale of these support measures far outweighs the recoveries that the Government
would receive via HMRC’s preferential claims in insolvency.</p>
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