Since 1 December 2020, HMRC has regained its status as a preferential creditor. Valuation experts working with distressed businesses and insolvencies will need to assess HMRC’s reinstated role carefully, since no one is entirely clear yet on how Treasury intend to respond once winding-up restrictions end or whether delayed tax payment agreements are enforced. These decisions could influence whether distressed entities survive.

Most legal and tax experts are uncertain at this point. Squire Patton Boggs (SPB) published a thorough analysis of the issues of concern and unknown risks last week in London, which concludes, “[I]f HMRC don’t respond in a supportive manner, 2021 could be a bumper year for both tax recoveries and insolvencies.” The law firm notes that an aggressive HMRC stance now would “undermine the support given by the Government to businesses to date” and would certainly destabilise many insolvency processes as crown debt gets paid ahead of less secured debt. HMRC petitions would also, likely, increase.

SPB also note another “relatively new tool in the HMRC arsenal” of joint and several liability of directors (see their alert on this topic, which could increase risk for distressed businesses). To date, “HMRC have yet to come out all guns blazing,” the law firm notes.