In this week’s newsletter, Mark Smillie is taking a look at HMRC getting their preferential status back in December, and why this is a big deal!
“There is a big change happening on the 1st December which, even if it is not relevant to you, might have an impact on your business! You may wish to share this with your business friends.
This is only a short read, and I have kept it non technical. Please call me for further details as I have kept this short!
HMRC are getting their Preferential Status back on the 1st December.
Unfortunately, very few Company Directors are aware of this. If the past is anything to go by, the impact will only be known by the individual when it comes crashing down on their head and it’s too late to do anything.
These are the potential effects of this Preference change.
Company Directors or Shareholders etc. could lose their home because of this change in Preferential status.
Banks or Finance Company that might be giving you a finance facility/loan secured on their Fixed and Floating Charge, might well be in contact with you in December or the New Year to;
- Increase their Security
- Ask for more Personal Guarantees
- Reduce their facility or
- Call in the loan
You might still say the above does not affect me. But this could be an unintended consequence.
Some of your good clients that owe you money, might suddenly not have the finance in place that they thought they had. This could have a dire impact to your cashflow, if they are suddenly left without finance (example below).
To give you a little more detail about HMRC Preference from 1st December
In the event of a business going into Insolvency, the Banks Charge is only good on the Fixed Charge and not on the Floating Charge, where the major part of HMRC debt will come before them, meaning the Bank/Finance Company will now be reviewing their security and personal guarantees.
To give you a quick example, if the Bank Lent a business 100k, Secured on a Fixed and Floating Charge and a PG (personal guarantee) prior to December and the company went into insolvency , there was a good chance if there were some assets the PG would be largely covered by the Debenture.
But now from 1st December, the Fixed Charge is still valid (but a fixed charge in simplicity ONLY covers something that does not move like a Building).
However, the big change is this, HMRC (majority of their claim) now comes before the Floating Charge.
Meaning, if the business went down owing say £100k Vat and PAYE, the Bank Charge could now be be worthless leaving the Bank to collect the money from whoever guaranteed the loan.
A company director might well have taken out a loan, knowing if everything went wrong the Banks Charge would protect them from the PG being called. However, the family home could now be at risk!
You are very welcome to call me if you would like to discuss this or your options on 07710 466166.
The older Company Directors will remember what happened before when the Bank’s security was threatened.
This came to mind from a friend of mine.
“Over lunch the Bank Manager told me my £300k overdraft facility would be cancelled at the end of the month. I was apoplectic as the business was doing so well! The way they just mentioned it as if it meant nothing.”
I am afraid that healthy well run business went into liquidation.
If you take Invoice Finance, a Directors Guarantee is far less likely to be called. The way their money is secured is different and they have priority, protecting the PG. If done properly the PG will be capped in any case.
Run properly Invoice Finance supplies finance when needed, protecting your business.
Believe it or not many wise Company Directors have an Invoice Finance Facility, and barely use it if at all. It gives them piece of mind, if something really bad happens or they get a great business opportunity they have finance in place to deal with it.
Do you need another reason to call me ? These are our testimonials.
If you are looking to build up your “Financial War Chest” to keep you, your staff and your family safe then you are very welcome to call me on 07710 466166 to discuss your options, finance is available now, but it is never easy to find when you really need it.
Please pick up the phone and say hi, you are always welcome to call me on my personal mobile.