Budget has bad news for those who sell on credit

Hammond moves HMRC to the front of queue when firms go insolvent

Do you sell on credit?

Then the budget just brought you some bad news.

Philip Hammond announced yesterday that HMRC will become a preferred creditor in insolvencies.

Now, most firms that go bust owe something to HMRC. If someone you traded with becomes insolvent you were already pretty much guaranteed only pennies in the pound.

If the HMRC is going to be treated as a preferred creditor then the chances are you won’t see a penny.

This is a huge backward step for small businesses who sell on credit.

Peter Kubik, partner at UHY Hacker Young, said the change would “push ordinary trade creditors much further down the pecking order”.

The Chancellor said the move would “ensure that tax which has been collected on behalf of HMRC, is actually paid to HMRC,”

It is also a huge risk to those companies for whom cash flow is tight.  It basically incentivizes the HMRC to push companies into insolvency inorder to maximise their tax collection.

One commentator, Michael Wistow, co-head of White & Case, described it as a “retrograde step”. He said: “Every time this has occurred in the past HMRC has abused this power and led the liquidation of otherwise salvageable businesses.”

The reform “will only apply to taxes collected and held by businesses on behalf of other tax payers” and will not affect other taxes “owed by businesses themselves”.

From 6 April 2020, HMRC will remain below other preferential creditors but above floating charge holders and unsecured creditors

A separate change will make directors and others involved in tax avoidance, evasion or “phoenixism” jointly and severally liable for company tax liabilities where there is a risk the company may deliberately enter insolvency.

The combined changes are expected to bring in over £600m for the Revenue, peaking at £195m a year

How can CPA help?

At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk.

Our debt recovery services chase down unpaid invoices and recover owed funds that our members can put back into their business.

Our members have used this extra cash to invest in new technology, equipment or merely to hire an e-commerce team to improve the online presence of the brand. At the same time, our credit checks and credit reports are utilised by our members to investigate all suppliers and customers. It is important to scrutinise everyone within your business, to ensure their financial history will show no bad payment behaviour or maltreatment of suppliers.

It can be considered a lesser risk for a business to shut up shop and stop selling on credit rather than continue trade in difficult conditions. This does not have to be the case, and our services at CPA can prove it.

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.

The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

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