Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment his Department has made of the likely effect on business insolvencies of reintroducing secondary preferential creditor status in December 2020.

The recent legislative change gives HMRC second preferential creditor status for certain taxes. This change is designed to ensure 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.

This change is not expected to have a significant impact on financial institutions, the lending market or wider economy. This measure is forecast to raise up to £220 million a year. To put this into perspective, bank lending to small and medium-sized businesses alone in 2019 was £57 billion.

This reform will have no direct impact on VAT deferral as it only applies to businesses that become insolvent. Like HMRC’s Time to Pay scheme, the VAT deferral supports businesses with their cashflow pressures, making them less likely to be insolvent.