Firms reassured over post-Covid debts

Kwasi Kwarteng is keen to reassure businesses

The government has told business leaders it will take a "cautious approach" to firms that owe it money in the wake of the coronavirus pandemic.

The message came in a letter from Business Secretary Kwasi Kwarteng to the Institute of Directors and R3, which represents insolvency firms.

In the letter, first reported by the Financial Times, he said enforcing insolvency would remain a last resort.

The government has spent billions protecting the economy from Covid.

As part of these efforts, measures preventing firms from being wound up if they fall into insolvency have been extended until the end of September.

However, it is feared some companies could struggle to survive when emergency support measures begin to be removed.

Government help available to businesses includes loans, tax relief and cash grants.

However, many firms will have deferred taxes, including VAT, that will start to fall due as the country emerges from the pandemic.

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When company insolvencies involve unpaid VAT and income tax, HMRC has the status of "preferential creditor", which means it gets paid first.

But business leaders want the government to ensure this is used to help companies restructure, rather than to shut them down.

In the letter, seen by BBC News, the business secretary writes that he "recognises the path back to full trading and coming off government support will be difficult for many companies".

In response to concerns about firms becoming insolvent because of money owed to the Treasury through loans and support schemes, Mr Kwarteng says HMRC will take a "cautious approach to enforcement of debt owed to government" which has been accrued during the pandemic, "including from the number of loans and support schemes given".

"It is right that where government has stepped up, through the general taxpayer, to support the economy during this national emergency, that business should do all it can to pay its fair share of taxes and repay back loans where it can," he says.

He adds that it will be flexible with companies who engage with it in order to manage their debt.

There is pressure on the government to recoup some of the vast amounts spent supporting the economy during the pandemic - and Mr Kwarteng writes that a return to normal insolvency processes will be vital for a healthy economy.