Small and medium-sized companies that enter insolvency in 2020/21 should not be affected by a new measure, according to the Treasury.

From 6 April 2020, payments to HMRC will be prioritised when a company enters insolvency and go towards the public purse before being used to pay off creditors.

The rules, which were included in the draft finance bill 2019/20, will see certain tax debts owed to HMRC prioritised in insolvencies.

These debts include income tax, employee national insurance contributions (NICs), VAT, student loans and construction industry scheme deductions.

However, the rules surrounding debts relating to corporation tax or employer NICs will remain unchanged from 6 April 2020.

Fears had been expressed that the measure would make it harder for SMEs to access finance and threaten the sustainability of the Pension Protection Fund.

Jesse Norman, financial secretary to the Treasury, said:

"The Government carefully considered the case for reform prior to announcing this change last year.

"It is the Government's view that taxpayers can reasonably expect that when they have successfully paid their taxes, these go to fund public services as intended.

"This measure represents a proportionate approach that balances the interests of taxpayers, the Exchequer, and other creditors."

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