HMRC is a preferred creditor when businesses go bankrupt!
Bad news for small businesses! When a Company/business goes bust, or into liquidation because it’s insolvent, the liquidator pays cash out in a specific order. Some creditors rank more highly than others, for instance secured bank loans and employee wages rank highly and trade creditors generally rank at the bottom of the list. HMRC has been ranked at the bottom of the list for many years but, from April 2020, 4 different taxes will become preferred and rank higher than normal trade creditors. These taxes are; Income Tax, VAT, CIS tax and Employee’s National Insurance. This means that, soon, trade creditors will rank even lower as a creditor when trading with a business that suddenly goes bust. But, two other taxes - Corporation Tax and Employer’s National insurance - will continue to rank at the bottom with trade creditors.