Delivering a budget is no easy task for a chancellor. For Mr Hammond, the challenge lay in maintaining strict control of the public purse whilst boosting business confidence ahead of Brexit. The Chancellor also announced plans to support people on lower incomes as well as pledging to increase homeownership amongst first-time buyers. At the heart of this Budget was the need to strike a balance, and the Chancellor didn’t disappoint. His speech was also deemed “a good job in difficult circumstances” by Prime Minister Theresa May.
The Budget statement included several measures that will have an impact on the insolvency and restructuring profession. Here, we take a closer look at the proposals that are most relevant, including a government review of airline insolvency and additional compliance funding for HMRC.
Airline Insolvency Review
The government has announced that it will conduct a review into consumer protection in the event of the collapse of an airline or travel company. Although this was not mentioned by Mr Hammond in his speech, it was included in the Budget documents.
The review, which will be led by an independent chair, will draw from the lessons learnt from Monarch’s administration in its consideration of repatriation and refund protection for consumers. It will also identify the reforms necessary to ensure passengers are protected when an airline or travel company goes bust. The review will also look at options that will enable airlines to wind down in an orderly fashion so that they are able to conduct and fund operations to repatriate passengers with no cost to the taxpayer.
Adrian Hyde, President of insolvency trade body R3, said: “The insolvency process can be inconsistent for consumers where different sector regulators apply their own rules and regulations to the UK’s insolvency laws. The loss of regulatory licences upon entering insolvency, as happened with Monarch, can prevent business rescue and increase the impact of insolvency on consumers, employees, and other stakeholders.”
However, R3 warned that the government airline review would be an unnecessary duplication of effort, since the government had already announced plans to reform the insolvency rules.
Hyde added: “The government’s stalled reforms would boost the chances of business rescue, which would mean a smoother experience for passengers and higher returns to creditors.”
Security Deposit Legislation
Another measure that has an impact on the profession is Mr Hammond’s plan to widen the scope of existing security deposits legislation to include corporation tax and Construction Industry Scheme (CIS) deductions. A security deposit or bond is requested by HMRC when the taxman believes that there is a high risk of non-payment as a result of serious noncompliance or deliberate insolvency. When tax debt isn’t paid on time, HMRC can then settle the bill with the deposit.
A “Notice of Requirement” is used by HMRC to request the deposit from the taxpayer and the legal document shows how much the taxpayer must pay, when it must be paid by and the different ways the debt can be paid. This change in security deposit legislation to encompass corporation tax and CIS deductions come into force from April 2019 and is expected to bring in £70m in additional tax in 2019/20, rising to £135m the following year and then £150m annually.
Additional funding for HMRC
HMRC is set to receive more funding to tackle tax avoidance via insolvency and to exploit new risking tools that will identify users of new and existing avoidance schemes. This boost to compliance resources is expected to bring about a potential increase in HMRC petitioned insolvencies.
R3 stresses the importance of reforming the UK’s corporate insolvency framework, making it fit for purpose for domestic and international markets, and is critical of Mr Hammond’s Budget, believing it was a missed opportunity to push ahead with these reforms. Their proposals include protecting businesses whilst a rescue plan is being put in place by shortening moratoriums. According to the trade body, this would ensure that insolvency procedures strike the right balance between the interests of the ailing business and its creditors.
R3 has also proposed that essential supplies and a restructuring tool need to be amended to make certain that they are not open to abuse.
Of the reforms, Adrian Hyde said: “The UK has a world-class insolvency and restructuring framework, but reform is needed to ensure we keep ahead of rapid insolvency and restructuring improvements being made in other countries. Reform would also help our framework cope with the challenges posed by Brexit. The insolvency and restructuring framework underpins our economy, and without reform, we will all lose out.”