To Safeguard Jobs. Times are set to be hard, unemployment is due to rise. We should safeguard small businesses from being crushed by the failure of another and falling foul of the domino effect, resulting in more job losses. Often the amounts involved may be a drop in the ocean for HMRC, but a life (and business) changing figure to a small company and its employees.
When a company becomes insolvent HMRC still (although somewhat reduced since 2003) enjoys the status of preferential creditor. This is quite simply unfair. Many other small companies, who are ordinary, unsecured creditors, will be far less able to endure a bad debt and may well be forced into closure themselves as a result. I've seen this happen to other companies. HMRC should be at the back of the queue rather than at the front, ensuring that other companies are not undermined by the failure of the one. HMRC should ensure that other creditors have been paid before they look for their share of funds.