The Government’s public consultation on reinstating Crown Preference is now closed, leaving the finance sector and business awaiting their final decision. But what is it, and what does it mean for SMEs?
Under the Enterprise Act of 2002, Crown Preference was abolished by the then Labour Government which meant the Government were no longer first in line when a company collapsed and there were debts to recover. At the time it was portrayed as a being about ensuring a ‘more equitable’ division of debts. The Government of the day needed to appeal to business, and business welcomed it.
In this year’s budget, the Chancellor announced a reversal of this policy by reinstating HMRC as a preferential creditor for certain tax debts. Simply put, employees, suppliers and consumers move down the pecking order, and may recover less money when a company ceases trading.