CVA’s drop 47% after HMRC changes Debt Collection rules

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cvas drop after change in hmrc debt collection

The latest Data analysed by Mazars shows the number of struggling businesses applying for Company Voluntary Arrangements (CVAs) has fallen by 47%. It is suggested that this large drop is due to a change in the laws in 2020 which made HMRC a preferred creditor when businesses go bust.

A company voluntary arrangement (CVA) can be used when a company is insolvent. It is an agreement to pay creditors over a fixed period. If the creditors agree then the business can continue trading.

CVAs have fallen to just 110 in the last 12 months. This figure is way down from 206 in the previous year. This is based on data analysed by tax and advisory firm Mazars.

Historically, CVA agreements have offered a lifeline to businesses in financial peril and helped save jobs. But Mazars said that a 2020 change to the law to the way that HM Revenue & Customs can recover tax debts has made CVA a more difficult option for firms. It has also said it will possibly lead to a sharp surge in businesses filing for administration.

Rebecca Dacre, Partner at Mazars said “It is understandable for HMRC to be a preferred creditor with a view to recover money owed to the taxpayer. But it must be recognised that the unintended consequence of this is fewer companies entering a CVA.”

“The change will mean directors will have fewer insolvency options, leading to worse returns for other creditors and “ultimately more administrations.”

The change to the HMRC Debt Collection rules has benefited the state but potentially lead to the loss of jobs.

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