HMRC becomes preferential creditor

The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations, SI 2020/983, amend the Insolvency Act 1986 to make HMRC a second preferential creditor in relation to certain debts in insolvencies on and after 1 December 2020.

The framework for the regulations was introduced by FA 2020 ss 98 and 99 which provide for the priority of certain HMRC debts on insolvency, meaning that those debts can be paid before other debts. Those sections apply to VAT debts and ‘relevant deductions’. The regulations specify the following as ‘relevant deductions’:

• tax deducted under the construction industry scheme;
• employee NICs;
• income tax deducted under PAYE; and
• deductions in respect of student loans.