Taxmen turn up heat on strugglers

INLAND Revenue and Customs & Excise officials are beefing up their insolvency skills ahead of the abolition of their long-protected preferred creditor status.

The two taxation arms of the State have held a privileged position since 1825 that ranked them ahead of any unsecured creditor when a company went bust. But as part of last year's Enterprise Act, which was designed to improve insolvency practice, their status as preferred creditor disappears in September.

The Government said that this was being done to help small companies since they were often among the unsecured creditors left with nothing once the Inland Revenue and Customs had extracted their pound of flesh.

But Keith Stevens, partner with accountants Wilkins Kennedy, says the move could force more firms into liquidation if the Revenue and Customs become more heavy-handed.

The two tax authorities reckon that between them they collect about £70m a year through their preferred creditor status.

Stevens said: 'Revenue and Customs may try to compensate for this loss of income by targeting those businesses they see as most likely to owe them money. Once debtors have been identified, the tax authorities may feel obliged to be more interventionist when collecting outstanding revenue than they did before - even if that means forcing businesses into insolvency.'

He claims that in recent months Revenue and Customs staff have been attending creditors' meetings much more than they used to as they find themselves on 'a steep learning curve in preparedness for fighting the Crown's corner in future'.

The Enterprise Act, steered through by Consumer Minister Melanie Johnson, specifies that the Revenue no longer has preferred status for either income tax or national insurance due in the 12 months prior to insolvency and Customs for VAT and other taxes in the six months ahead of insolvency.

Stevens warns that this could lead to the authorities monitoring tax payments more closely, submitting demands or petitions for unpaid tax earlier and making more use of door-to-door enquiries.