March 12 2004. Corporation tax on gains and profits are to be paid ahead of lenders and ordinary creditors, such as employees and trade creditors, under the administration process introduced by the Enterprise Act 2002.

The change to make corporation tax, including tax on gains and other income, an expense of administrations will reduce the amounts paid to creditors. The tax due will be paid before there is any return to the preferential creditors, unsecured creditors or a lender holding a floating charge over assets. Fixed charge holders are not affected.

Where there may be significant chargeable gains, a better return for stakeholders is likely to be achieved by an administrative receivership, where at present the tax payable remains an unsecured creditor.

Entering administration triggers the start of a new tax accounting period. The opportunity to use the trading losses incurred prior to administration will be lost. Pre-administration tax planning is key to mitigating administration tax liabilities to achieve better returns for stakeholders. The payment of any tax liability in a liquidation remains unchanged.

More information from your accountant.