MOVES to put HMRC near the head of the queue for money when businesses become insolvent could damage small businesses and the economy, it is claimed.

The government’s latest Finance Bill, which is currently going through parliament, would make revenue and customs a preferred creditor in insolencies.

That would put it ahead of suppliers, consumers, pension schemes, employees and some lenders.

Southampton-based Garry Lee, who chairs the insolvency body R3’s southern and Thames Valley committee, said the move could have a significant impact on access to finance for small business.

He said: “At a time when the business community is reeling from the Covid-19 pandemic and the subsequent lockdown, this policy risks undermining the work the government has done to protect businesses and preserve jobs through the support measures it has announced over the last few weeks.

“If this policy goes ahead, asset-based lenders will be far less likely to provide the finance needed for businesses because there will be a greater risk of losses in insolvencies.

“This will be particularly acute where new funding is needed to support business rescue.”

Mr Lee, a senior manager in the recovery and restructuring services team at accountancy firm Smith and Williamson’s Southampton office, added: “If a rescue attempt doesn’t succeed or can’t start because the business can’t access the finance it needs, everyone loses out.

“The business fails, jobs are lost, and the Treasury misses out on tax receipts.”

Research carried out by R3 last year showed that 78 per cent of insolvency and restructuring professionals feared the proposals would make it harder to rescue businesses.

Eighty-three percent thought the plans would make it harder for firms to access the funding they need, while 85 per cent felt that any negative impact the proposals may have outweighed the government’s justification for introducing the change.

Garry said: “The government’s policy will hurt asset-based lending, in particular.

“This type of lending is really important for retailers and small businesses – exactly the type of businesses most in need of help at the moment.

“This is not the way to go about increasing tax revenue from insolvencies. It makes no sense for these proposals to go ahead – not now, not even when the economy has recovered.”

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