Answers · UK 2025/26
What is the order of preferential creditors in a UK insolvency?
When a UK company is wound up, money is paid out in a set statutory order: secured creditors with fixed charges first, then insolvency costs, then preferential creditors (employee wages and some pensions as ordinary preferential, and most HMRC taxes as secondary preferential since 2020), then the prescribed part for floating-charge unsecured creditors, then floating charges, then ordinary unsecured creditors, and finally shareholders.
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Insolvency law sets a strict waterfall for distributing a failed company's assets, designed so each tier is paid in full before the next receives anything. Understanding the order matters to employees, suppliers, lenders and directors. The broad sequence is: (1) fixed-charge secured creditors, paid from the specific asset they hold security over; (2) the costs and expenses of the insolvency, including the office-holder's fees; (3) preferential creditors; (4) the 'prescribed part', a ring-fenced slice of floating-charge realisations reserved for unsecured creditors; (5) floating-charge holders; (6) ordinary unsecured creditors; and (7) finally, if anything remains, the shareholders. Preferential creditors split into two ranks. Ordinary preferential creditors are mainly employees - arrears of wages up to a statutory cap, accrued holiday pay, and certain occupational pension contributions. Secondary preferential creditors were reshaped by the Finance Act 2020: from 1 December 2020 HMRC regained preferential status for taxes the company collected from others - PAYE, employee National Insurance, VAT and Construction Industry Scheme deductions. Taxes the company owes in its own right, such as Corporation Tax and employer NI, remain ordinary unsecured and rank far lower. This 'Crown preference' return reordered risk: HMRC now sits ahead of floating-charge lenders for those collected taxes, which has affected lending against stock and book debts. Worked sense-check: a company is wound up owing GBP 30,000 of unpaid VAT and PAYE and GBP 40,000 of Corporation Tax. The GBP 30,000 of collected taxes ranks as secondary preferential and is likely paid before floating-charge and unsecured creditors; the GBP 40,000 Corporation Tax ranks as ordinary unsecured and may receive little or nothing. The exact employee wage cap and pension limits are set in regulations and are not figures to assume - verify current limits on gov.uk. Use the corporation tax calculator when modelling a company's own tax exposure.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.