Paul Dounis

The audit, tax and consultancy firm believes that the change, due to come into effect on the 1st of December, could undermine the current rescue culture and directly lead to business failures and further job losses.

From December 1, HMRC will benefit from a priority preference which means that in any form of insolvency process, it will rank ahead of other creditors, notably funders and trade suppliers.

With the current level of HMRC arrears owed by many companies, RSM is concerned that prioritising HMRC’s position will limit the funding and restructuring options available, undermine the current rescue culture, and lead to an increase in corporate failures, with the net receipts to HMRC being substantially reduced in both the short and medium term.

In an open letter to the Chancellor, RSM has highlighted the dire consequences of HMRC’s move and the risks to Scottish businesses already struggling to stay afloat, particularly those Scottish businesses already impacted in the tourism, hospitality and leisure sectors. A delay in implementing this legislation will allow businesses more time to put in place restructuring and funding facilities, thereby enabling them to survive and contribute to the UK’s economic recovery, says RSM. The alternatives will be more insolvencies and administrations with higher job and financial losses.

RSM has successfully used Company Voluntary Arrangements (CVAs), combined with the injection of new funding, as a tool to successfully restructure businesses. Over the past 3 months they have worked on 8 transactions which have saved over 2,000 jobs and preserved over £50m of investment. The success of these processes has been driven by all stakeholders committing to collective compromises.

Paul Dounis, head of RSM’s practice in Scotland, commented: “Many organisations which would have been considered sound businesses models up until March, now find themselves exposed to the most unpredictable market conditions we have seen in a generation.

“Our concern is that HMRC’s planned preferential creditor status will severely constrain the restructuring options for struggling businesses and limit their access to finance. Consequently, we believe the legislation will be counterproductive as by limiting funding and rescue options, we will see a raft of businesses fail with minimal returns to creditors. This will only accentuate the cost to the Treasury with the loss of productive tax paying businesses and employees and an increased dependence on state support.

“No sector has been more affected by the coronavirus pandemic than the consumer facing businesses. The Chancellor’s measures to date are to be commended, however HMRC’s preferential creditor status needs to be delayed to ensure that all the Government’s support is not wasted.”