HMRC’s Crown Preferential Status: Big Gains? Not Really.
Since the UK tax authority regained its “preferential creditor” powers back in December 2020, it’s only managed to pull in a modest £14.4 million from insolvent businesses over the past two fiscal years. That’s the headline, but the headline really understates the drama at the insolvency table.
What’s the Deal With Crown Preference?
Think of “Crown Preference” as the VIP pass at a corporate shake‑up soirée. It lets HMRC step in front of virtually everyone else—banks, suppliers, suppliers, you name it—to claim the tax owed by a failing company. Even lenders with floating charges are squeezed out of the front row.
Why Some Shocked Over the Reinstatement
- Unsecured creditors, especially smaller suppliers, often end up with a scramble for the last crumbs.
- Bank lenders worry that the higher risk of getting stuck behind HMRC means they’ll tighten loan limits and hike interest rates.
- For the little guys, being shuffled to the back of the line can mean zero recovery—annoying and, frankly, a bit unfair.
The Numbers Behind the Hype
According to Mark Boughey, Partner in the Restructuring Services practice at Forvis Mazars, the sum collected by HMRC so far is curiously small compared to the extra pot it could be extracting. Boughey notes: “The amount of money raised through Crown Preference is a surprisingly small pot for HMRC. That money that would make a lot of difference to some other creditors.”
What If the Money Were Shared?
- More funds going to suppliers and lenders could keep the wheels of financing turning.
- Better-structured loans and bigger credit lines could help the broader economy, rather than just keeping HMRC in the spotlight.
Boughey also points out that as insolvency cases spike and more firms progress through the dividend loop, future recoveries could climb. “It’ll be interesting to see how the figures evolve,” he says.
Conclusion: A Quick Take
HMRC’s Crown Preference might sound like a monarchic cudgel, but in practice it’s not giving the tax collector a colossal windfall. Fornow, smaller creditors aren’t seeing the promised windfall, raising questions about whether the preferential status truly benefits the wider business crunch. We’ll keep an eye on how the numbers change—and maybe hope the Crown will start sharing the loot a bit more.
