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Company Failures Are Falling, But HMRC Still Jumps The Creditor Queue

ended 21. July 2026

The company failure figures for June 2026 look like good news. There were 1,845 company insolvencies in England and Wales, down 10 per cent on a year ago, and the 12-month failure rate has eased to 1 in 198 companies. But a falling headline hides who is actually going under and what it costs them. Nearly three in four of these cases, 1,364 of the 1,845, are creditors' voluntary liquidations: small companies choosing to wind up. And when a small company is wound up, HMRC does not sit at the back of the queue. Since 1 December 2020 it has ranked as a secondary preferential creditor for the taxes the company collected on the state's behalf, the VAT, the PAYE income tax and the employees' National Insurance, so it is paid ahead of the floating-charge lender and the suppliers, though still behind the employees and behind any fixed charge the bank holds. The company's own Corporation Tax and employer's National Insurance rank further back as unsecured, alongside the trade creditors who may see little or nothing. The exposure does not stop at the company either. A liquidator can call in an overdrawn director's loan account as a personal debt, and any personal guarantee the director signed crystallises. (Administrations rose sharply on paper, up about 80 per cent year on year, but the Insolvency Service attributes much of that to roughly 60 connected real-estate companies entering administration in the single month, so it is not a broad surge.) The buried point is that a falling number is not an all-clear for the small-company director, who is often the last to learn where they sit when the doors close.

  1. The failure rate is down and, administrations aside, the trend looks calmer, so is a 10 per cent fall genuinely reassuring, or does the dominance of small-company liquidations tell a different story about who is still going under?
  2. When a small company is wound up, HMRC now ranks ahead of the floating-charge lender and the suppliers for the VAT and PAYE it collected. Is it fair that the taxes a struggling business gathered for the state get paid before the people it actually traded with, and who loses out most?
  3. Are you seeing directors caught out by the personal side of this, the overdrawn loan account called in or the personal guarantee crystallising? Please share as much colour and detail as you can, anonymised.


 

2 responses from the Newspage community

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Editor
Harvey Dhillon
Founder & CEO at Zmartly
Picture a small company being wound up. Failures are falling, down 10 per cent on a year ago, and that is real. But it hides who is left in the queue. Nearly three in four of these are small firms in a creditors' voluntary liquidation, and there HMRC does not wait its turn. For the VAT, PAYE income tax and employee National Insurance it collected for the state, HMRC ranks as a secondary preferential creditor, ahead of the floating-charge lender and the suppliers, but behind employees and any fixed charge the bank holds. Its own Corporation Tax and employer's National Insurance sit further back, unsecured. So if you are struggling, know the trap before the doors shut: an overdrawn director's loan gets called in, and any personal guarantee you signed becomes your debt. A falling headline is small comfort. One in every 198 companies still failed last year, and behind most stands a director who thought the loss stopped at the front door.
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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
A 10% fall is welcome, but it is not an all-clear. Nearly three quarters of June’s insolvencies were voluntary liquidations: owners accepting there was no viable road ahead. The cruelty is that collapse rarely ends at Companies House. HMRC moves ahead of suppliers for VAT and PAYE, while the plumber, wholesaler or freelancer who kept the business trading may receive pennies. Fair to taxpayers? Perhaps. Fair to suppliers? Often not—and it can create a chain reaction of failures. Directors are also frequently shocked to discover that a limited company is not a forcefield: an overdrawn loan account can be pursued personally and a personal guarantee can crystallise. The lesson is brutally simple: seek advice before the cash runs out, not afterwards. Falling insolvencies are encouraging; 1,364 voluntary closures in one month remain a warning siren.