Much will depend on the specifics of a company’s financial position, but there are some themes from the OutsideClinic and Enzen judgments that are helpful – and arguably so even beyond the context of RPs for a company’s managing its relationship with HMRC.

Is HMRC in or out of the money?

In OutsideClinic HMRC had reservations about the valuation evidence put forward by the plan company in support of its position that administration was the relevant alternative.  Under the RP HMRC stood to recover 5p in the £ but nil in the relevant alternative –  HMRC was therefore out of the money.

The valuation evidence was based on certain assumptions in respect of the recoverability of book debts which if those turned out to be inaccurate would have entitled HMRC to a distribution in the alternative – meaning it would have been in the money. It was acknowledged by the plan company that it would only take a “relatively small shift” in the assumptions for this to be the case.

Recognising the likelihood of HMRC being an in the money creditor on a contested application the parties negotiated an improved outcome for HMRC – funded by the plan investors – which would not impact the returns to other creditors.

Take Away

HMRC is different to other creditors given its secondary preferential status, and its voice as a creditor that is potentially in the money, where there is a prospect (even small) of it being paid in the relevant alternative should be listened to. This voice may in fact be louder now, following the Court of Appeal confirming in Thames Water that the views and treatment of out of the money creditors can be relevant when considering whether a plan is fair – particularly so given the elevated status that HMRC has on insolvency.

Recognising HMRC’s role

HMRC has preferential status on an insolvency such that its claims for certain tax liabilities rank ahead of other claims as preferential claims.  That status does not exist on an RP where a plan company is free to ignore the statutory order of priorities (provided it can be justified).

Not only that, but HMRC’s as a creditor is also different to other creditors.  It has not chosen to trade with the company but is an “involuntary creditor” that continues regardless of whether HMRC is paid or not.  HMRC cannot “opt” out of that relationship like other creditors might do.

The judge in Enzen observed that HMRC’s treatment under the Enzen plans (of which there were two) reflected:

• the standing of HMRC as preferential creditor;

• the commercial leverage that it is able to exert in consequence of Naysmyth and the Great Annual Savings Company; and

• the inevitability of an ongoing relationship as trading continues.

Take Away

What we have seen as a consequence of these particular RPs (and those before) is judicial acknowledgement of HMRCs status as a “prominent” creditor which could be translated to – treat them differently and better than unsecured creditors.

That is all well and good, but we think it is probably fair comment to say that HMRC’s role in supporting a failing business can sometimes be seen as lacking or at least taken to be unsupportive.  But perhaps now is the time for both practitioners and HMRC to reflect on their historic views.

What HMRC did demonstrate in both cases is that it was willing to engage, something that Mr Justice Norris said in Enzen was a “welcome development”.  This signals a positive change, not only, we hope for RPs but also more generally. 

On the flip side, if a company is prepared to recognise at an earlier point that HMRC is an involuntary and ongoing creditor in its business then surely that would help manage that relationship in a positive way (whether in the context of an RP or otherwise).

To pay or not to pay HMRC, that is the question?

What we can gauge from OutsideClinic is that although certain HMRC liabilities were unpaid for three months in 2024, its remaining 2024 liabilities were paid in full and continued to be paid during 2025.

In Enzen too, there were historic arrears but from June 2024 tax liabilities were being paid as they fell due, and current liabilities were excluded from the plan – in other words the companies did not seek to compromise those.

Take Away

Although there is no comment in the judgments about whether paying current liabilities influenced HMRC’s attitude, HMRC’s guidance makes it  clear that it will consider whether other creditors are being paid when HMRC is not, and whether the company will make future payments in full, and on time, when deciding whether to support a plan,

Paying HMRC current liabilities is likely to encourage engagement and willingness to re-schedule or compromise historic liabilities.  Falling further into a black hole with tax debts, not paying HMRC and trading at its expense is likely to do the opposite. 

Arguably the starting point for any company requiring HMRC’s support (whether that be for an RP or a time to pay agreement) is to be able to demonstrate that at least it will be able to meet future liabilities.

Concluding Comments

We have seen a positive change in HMRC’s approach in these cases which is very encouraging, but do we as practitioners need to do the same when it comes to managing relationships with HMRC generally?  That may depend on whether HMRC’s change in attitude extends beyond RPs.

If there is more of a willingness to recognise HMRC’s role as an involuntary preferential creditor in negotiations, then perhaps we will see that reciprocated by HMRC showing a greater willingness to compromise in return.  However given that the thorny relationship runs quite deep, we expect practitioners will first want to see HMRC engage more regularly in a positive manner outside of RPs, and that would be a “welcome development”.