Is HMRC An Ordinary Creditor? Is HMRC just like any other unsecured creditor? Well, there is a school of thought that says HMRC in respect of an unsecured claim is a creditor just like anyone else with an interest in the outcome of an insolvency process.
However, unlike almost every other creditor, HMRC is what is known as an involuntary creditor. HMRC is a creditor arising as a creature of legislation and has no choice other than to engage with a business.
How is HMRC Different to Other Unsecured Creditors?
Duty To Collect and Claim
Unlike other unsecured creditors HMRC has certain duties to collect in taxes. Any other creditor can drop their claim like a stone if they so wish. HMRC cannot do so with such conceivable alacrity.
What about how HMRC becomes a creditor? Well HMRC as mentioned aforesaid has no choice in the matter. Almost ever other creditor other than HMRC is a creditor out of choice. That is not to say that they chose to be unpaid. Certainly not! Other creditors do choose to trade or grant credit to the insolvent company or insolvent individual. HMRC makes no such choice.
Under HMRC’s Tax Charter it says at paragraph 1.7 as follows:
“We’ll identify those who are not paying what they owe or are claiming more than they should and recover the money. We’ll charge interest and penalties where appropriate and be reasonable in how we use our powers.”
HMRC has Strategic Objectives and in the first of its three strategic objectives is says:
“Maximise revenues due and bear down on avoidance and evasion”
In the case of Rahman v Commissioners of Customs and Excise  EWCA Civ 1881 Chadwick LJ at  said:
“The underlying purpose of the legislative provisions is to ensure that the taxable person accounts for the correct amount of tax.”
Knowledge and Records of the Claim
The other interesting facet of how HMRC’s position as a creditor sprouts is through the regime of self-assessment. The taxpayer (company or individual) assesses the amount of tax it has to pay to HMRC. Save if indeed there is a compliance issue or something that causes HMRC to query the taxpayer’s own assessment and open a tax enquiry or investigation, then in most instances, the debt of HMRC is the debt that the taxpayer informs HMRC about. Therefore whilst the taxpayer has an undeniable duty to be open, transparent, honest and come clean to HRMC about their tax affairs, HMRC in most cases is simply reliant upon the taxpayer for the information about the amount that is owed.
HMRC Does Not Trade
Compare and contrast that proposition with almost any other creditor and you can perhaps discern the distinction. Imagine a trade debtor providing credit to a relevant customer. This trade debtor will know from its own books and records precisely how much it is owed (certainly ought to!), the basis upon which its claim to being an unsecured creditor is predicated and will be able to prove its debt. Whereas HMRC has no such luxury. Even if HMRC launches a tax enquiry, its investigation will be assisted and or hampered in the first instance by the extent of the taxpayer’s books and records. It has no underlying records of its own to refer because it does not trade.
The Crown Preference is Back!
For another reason, HMRC cannot realistically be considered any longer to be just a creditor like any other creditor because the Crown Preference is Back! HMRC will soon see a return to an element of its former preferential status that it enjoyed.
Section 98 of the Finance Act 2020 kicks into effect from 1 December 2020 for case of such relevant date.
From 1 December 2020, HMRC will rank as a preferential creditor for taxes that a company collects on HMRC’s behalf including VAT, PAYE and employee National Insurance contributions.
HMRC will remain an unsecured creditor for taxes that it collects directly, including Corporation Tax and employer National Insurance contributions.
At Oliver Elliot our CEO, Elliot Green, has over 20 years of experience helping creditors in insolvency proceedings. Call now on 020 3925 3613 for a Free Initial Consultation if you are a creditor in an insolvency matter.
“Is HMRC An Ordinary Creditor?” is a post that is not legal advice and should not be relied upon as such. You should seek independent legal advice about the facts of your case.