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Personal insolvency casework

Resources to support insolvency practitioners in undertaking formal personal insolvency appointments under the Insolvency Act 1986 (and associated legislation), providing information about the types of personal insolvency that may assist individuals experiencing debt problems, and guidance on bankruptcy and individual voluntary arrangements.

IVA Protocol

The IVA protocol is a voluntary framework for dealing with straightforward consumer-based IVAs, aimed at increasing trust and confidence between the participants in an IVA and also improving the efficiency of the IVA process.

Checklists*

* Please see our disclaimer below before accessing these documents.

England and Wales - post April 2017

All insolvency case types

This checklist is designed to support the work of ICAEW licensed Insolvency Practitioners (IPs) in preparing for insolvency compliance reviews and to comply with the requirements of ICAEW’s insolvency licensing regulations and guidance. It aims to support reviews of formal personal and corporate appointments for work done on or after 6 April 2017.

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 England and Wales - post-April 2010

Bankruptcy appointments

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A checklist to help insolvency practitioners complete case reviews of bankruptcy appointments for individuals.

Individual voluntary arrangements - Post April 2010

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Checklist to support insolvency practitioners undertake individual voluntary arrangement casework undertaken after April 2010.

Individual voluntary arrangements - Post July 2014

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Checklist to support insolvency practitioners undertake individual voluntary arrangement casework undertaken after 1 July 2014.

Pre-April 2010 checklists

Guidance

PPI Guidance: Review in the light of the decision in Green v Wright (August 2017)

In April 2013, guidance was issued on the treatment of PPI claims in personal insolvency (“PPI Guidance”). A review of the guidance indicates that its provisions are unaffected by the decision in Green v Wright. This note is supplemental to the PPI Guidance and intended to provide clarification in respect of individual voluntary arrangements only.

Guidance on PPI mis-selling claims

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This paper provides guidance to officeholders dealing with Individual Voluntary Arrangements (IVAs) or bankruptcy cases on the issues that may arise when the debtor may have been mis-sold Payment Protection Insurance.

VAT Tribunal - Paymex Limited v HMRC

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HMRC recently issued a business brief in response to the VAT Tribunal decision in the case of Paymex Limited v HMRC, dealing with the VAT liability of services provided by an insolvency practitioner (IP) in an individual voluntary arrangement (IVA). HMRC have released further guidance to clarify the main points of concern outlined in this buisness brief.

Trust Deeds: Guide to the practical implications of the Paymex decision

This guidance seeks to summarise common issues that may arise when dealing with Trust Deeds affected by the decision in Paymex. This guidance was funded by ICAS and shared with the other RPBs, as the equivalent guidance for IVAs etc has been shared with ICAS (see below). There is separate guidance on IVAs and other case types based on Counsel’s advice co funded by a number of the RPBs (ICAEW, IPA, ACCA, CARB) and also R3 and DRF

In debt? Dealing with your creditors

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This guide, produced by the Insolvency Service, explains the various options open to those in debt to make arrangements involving creditors. The guidance explains how the options work and some of the pros and cons of each. The guide can help with personal or business debts, or both.

Bankruptcy - Family homes

Insolvency Guidance Papers (IGPs) are issued to insolvency practitioners to provide guidance on matters that may require consideration in the conduct of insolvency work or in an insolvency practitioner’s practice. This IGP covers bankruptcy and family homes.

Office of Fair Trading - Debt management guidance

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Guidance from the Office of Fair Trading for fee-charging debt management companies (DMCs), covering services such as: advising on restructuring of debt, contacting creditors, undertaking reviews of the debtors' financial circumstances, and making payments on his behalf.

Financial controls for insolvency cases

This helpsheet is for Insolvency Practitioners (IPs). It is essential that an Insolvency practice has robust controls over estate accounts and cashiering procedures, both to ensure that estate monies are safe, and also to enable you to prepare accurate statutory returns, and receipts and payments accounts.

Personal insolvency casework

Guide to the practical implications of the Paymex Limited decision

IPs should note that legal advice is being sought by The Institute of Chartered Accountants of Scotland regarding the applicability of the Paymex decision to Trust Deeds.

This guide does not constitute legal advice nor does it seek to instruct or direct IPs in the administration of their IVAs. The bodies issuing this guide do not accept any liability in respect of actions that IPs may take in accordance with it, as it must be for each IP to be satisfied that his/her conduct meets the legal and professional requirements placed upon office-holders. However, notwithstanding the above, IPs should have regard to the regulatory as well as legal consequences of their actions. The guide should be read in conjunction with, the following:

i. Paymex Ltd v HMRC decision [reference 2011 UKFTT 350]
ii. Joint statement issued by the RPBs and R3 dated 22 July 2011
iii. Dear IP letter no.50 issued by the Insolvency Service
iv. Briefing issued by HMRC [reference Revenue & Customs Brief 27/11]
v. HMRC VAT notice How to correct VAT errors and make adjustments or claims [Notice 700/45]
vi. Clarification notice issued by HMRC (attached)
vii. Insolvency code of ethics
viii. SIPs 1, 3, 9, & 11
ix. Clients’ money regulations/guidance
x. The definitions set out at the bottom of this page

1. Charging VAT

IPs who have not already done so should ensure that their firms stop charging VAT on invoices for fees and disbursements in IVAs with immediate effect as these are exempt supplies. IPs should also consider the current VAT quarter and whether any adjustments are required to reflect the exempt status of these supplies.

2. Claiming refunds on open cases

The effect of the Paymex ruling is that VAT on previous invoices for fees has been charged erroneously, albeit in good faith at the time. Accordingly, we believe IPs should take all appropriate measures to remedy the position for the benefit of creditors. Regardless of the absence of any obligation to do so under VAT legislation, the office-holder’s duty to maximise realisations requires a supervisor to seek recovery of sums that are due to the estate. Office-holders should also be mindful of creditors’ expectations and the exposure to action by creditors if claims are not made.  We are seeking counsel’s opinion as to whether or not Supervisors are obliged to seek refunds where the recovery would be negligible.

3. Closed cases 

The duty referred to above may or may not encompass completed (closed) cases, as the IP’s ongoing jurisdiction/locus is questionable. We are seeking counsel’s opinion on closed cases and will make a further statement as soon as reasonably practicable. IPs considering claiming refunds in such cases may wish to await that legal opinion or take their own advice before distributing any sums received. [See Footnote below]

4. Cases about to be closed 

Having regard to the above, IPs may form the view that IVAs reaching their conclusion, whether by reason of completion or termination due to failure, are cases in respect of which refund claims may be made only for as long as those cases remain open. Office holders may therefore wish to consider whether the terms of such cases permit the continuation of them pending resolution of the VAT issue, subject also to taking into account the position of the debtor.

5. Claims process 

The claims process is set out in HMRC’s Notice 700/45. The time limit for making claims is four years but not longer. Creditor agents understand this and have indicated that they will not be pressing for more.  
IPs should note that time continues to run until a claim is made.

6. Gross v NET

HMRC will pay a net sum comprising:
• output tax wrongly charged and identifiable to individual cases;
• input tax wrongly reclaimed and identifiable to individual cases;
• input tax wrongly reclaimed because of partial exemption rules (this tax is not identifiable to individual cases).

Only the net amounts will be refunded. Creditor agents have indicated that they will accept the net amounts as the reasonable and appropriate  realisation or windfall, and that they will not be pressing for any form of top-up in respect of the input tax adjustment.
As some creditors may take a different view, IPs should refer to the comment in the summary below.

7. Receipt of refunds

In order to avoid unjust enrichment, HMRC will require confirmation from the firm that sums paid will be passed without deduction to the estates from which VAT was paid in the first place. The refunded amount(s) should be paid into designated estate accounts (or a general clients’ account in respect of any closed cases) and should be transferred by the firm into those accounts as soon as they are cleared (not more than 7 days later).

These are in effect third party funds and should be segregated from those of the firm.
Where IPs are claiming refunds in respect of closed cases, they should be prepared to distribute these without delay.

8. Allocation

Where refunds include deductions for input tax wrongly claimed either in respect of case specific disbursements or as a consequence of the partial exemption rules applying, IPs will be required to calculate the appropriate amount to be credited to each estate. The simplest and most equitable method of calculation may be one that has the effect of apportioning the input tax arising from the application of the partial exemption rules across the cases rateably, i.e. if input tax represents 40% of the output tax claimed on average and consequently only 60% of output tax claimed is refunded, then each estate should receive 60% of the output tax suffered, the balance being regarded as irrecoverable VAT. 
Case specific input tax should of course be applied to that case.

9. Fees

HMRC has confirmed that once refunds have been paid into the estates, the normal IVA procedures apply and office holders may be remunerated out of estate monies in accordance with the terms of the IVAs in the usual way. It is arguable that VAT refunds are not, technically, realisations in the estates; however, creditor agents are prepared to permit office holders to consider them as such for the purposes of invoking existing fee approvals, and the regulators identified below (‘RPB’) will not regard fees drawn on this basis as improperly authorised.

In some IVAs, the nominee’s fee will have been approved on a VAT-inclusive basis. Where that is the position, subject to satisfying other terms of the IVA as modified, office holders may with good reason consider that they are entitled to the element of the refund attributable to VAT on the nominee’s fee. However, it may be seen as equitable by the creditors if the IP were to take into account any input tax adjustment necessary as per the example above, e.g. if only 60% of the VAT is recovered, then 60% would be the appropriate percentage of the VAT on the nominee’s fee to be paid to the office holder.

10. Variations

Having regard to the above, ordinarily office holders should not need to instigate variations to the terms of the IVAs. Creditor agents will not be minded to approve fees at a rate higher than those already covered by the existing terms, and regulators will look very closely at the justification for variations.

11. Queries

IPs seeking further clarification on any of the points covered in this guide may contact HMRC or one of the following bodies for assistance. This guide is issued by:

  • Association of Business Recovery Professionals, R3
  • Chartered Accountants Regulatory Body, CAI (RPB)
  • Debt Resolution Forum
  • Insolvency Practitioners Association (RPB)
  • Institute of Chartered Accountants in England & Wales (RPB)
  • The Association of Chartered Certified Accountants (RPB)
  • The Institute of Chartered Accountants of Scotland (RPB)

12. Summary

We believe the above sets out a practical way of dealing with the effects of the Paymex decision. It places an obligation on IPs to claim refunds in open IVA cases, but it seeks to deal with the process on a basis that is fair to all concerned.

Creditor agents for their part have adopted a reasonable stance in indicating their preparedness to accept net refunds and allow those monies to be subject to usual remuneration arrangements (though where firms seek to charge fees or disbursements which they consider excessive, they may reserve the right to adopt a different approach).

We are liaising with creditor agents with a view to seeking statements confirming their positions. IPs will need to be mindful of the potential for challenge by dissenting creditors, and may wish to adopt a different approach in cases where creditors not represented by the main agents are involved to a significant extent.

HMRC has offered some flexibility in relation to its principle of unjust enrichment by allowing fee arrangements to be entered into, but its insistence that refunds are paid to estates without deduction remains, and is full square with the position outlined by the regulators and R3 in their initial statement.
In accordance with normal practice, IPs should document their decisions and retain details of calculations made, and make relevant clients’ account and other records available to their regulators for inspection as part of the routine monitoring visits periodically undertaken by regulators.
Issued 31 August 2011

ANNEXE DEFINITIONS

  • IP - Insolvency Practitioner authorised by an RPB or the IS
  • RPB - Recognised Professional Body under IA86
  • IS - The Insolvency Service, an executive agency of the Secretary of State for Business, Innovation & Skills acting as Competent Authority under IA86
  • IA86 -  Insolvency Act 1986, as amended
  • Office holder - IP acting as Nominee/Supervisor as defined in IA86 in relation to an IVA
  • IVA - Individual Voluntary Arrangement as defined in IA86
  • HMRC - Her Majesty’s Revenue & Customs
  • VAT -  Value Added Tax
  • SIP - Statement of Insolvency Practice
  • Regulators - RPBs and the IS
  • Firm -  VAT-registered entity, partnership or company, in association with which the IP carries out his/her office holder duties
  • Office a/c - Bank account in the name of the firm
  • Clients’ a/c - Bank account satisfying the definition in the RPBs’ Clients’ Money Regulations
  • Estate - Trust managed by the office holder on behalf of creditors and/or other beneficiaries
  • Estate fund - Monies held in the estate
  • Estate a/c - Bank account operated on trust principles for an estate
  • TiB - Trustee in Bankruptcy – an IP acting as such in relation to a bankruptcy 
  • trustee - IP acting as trustee of a continuing express or implied trust subsequent to completion of an IVA
  • Creditor - Person, corporate or otherwise, owed money by the debtor, where that person’s claim is admitted by the office holder for dividend purposes
  • Creditor agent - Third party acting on behalf of and with the authority to exercise voting rights for one or more creditors, or a debt purchaser with such rights
  • Debtor -  Individual subject to an IVA
  • Bankrupt - Debtor subject to bankruptcy proceedings subsequent to failure of an IVA
  • OR - Official Receiver (part of the IS) acting as TiB in the absence of an IP appointed for that purpose
  • Fees - Office holder remuneration (and charges for disbursements) as approved by creditors in accordance with the terms of an IVA as modified or varied
  • Nominee - IP’s role in the period immediately prior to approval of an IVA, in respect of which an agreed fee may have been approved /modified by creditors
  • Supervisor - IP’s role subsequent to approval of an IVA, in respect of which a fee may have been approved by creditors

FOOTNOTE

The advice on closed cases will cover points about refunds flowing to debtors or to an OR/TiB where the debtor has become bankrupt, and where a debtor is due monies from a case after creditors have been paid in full, and will address concerns regarding fees, as any fee approval given by creditors in the IVA may be regarded as having expired.

Insolvency Group, August 2011

IVA protocol

It was developed after extensive work and cooperation by those representing debtors, lenders, insolvency practitioners and regulatory and representative bodies.

The ongoing effectiveness of the protocol will be overseen by a standing committee, on which the ICAEW is represented. The IVA protocol and related documents are available on the Insolvency Service's website.

The British Banking Association (BBA) has confirmed that its members will support the protocol but it cannot commit non-BBA creditors. You can view a list of BBA members on the British Banking Association (BBA) website.

The standing committee has a remit to keep the protocol under review. You can let us know how you think the protocol is working by emailing ivaprotocol@icaew.com.

Pre-April 2010 checklists

Guidance

Personal insolvency casework

Guide to the practical implications of the Paymex Limited decision

IPs should note that legal advice is being sought by The Institute of Chartered Accountants of Scotland regarding the applicability of the Paymex decision to Trust Deeds.

This guide does not constitute legal advice nor does it seek to instruct or direct IPs in the administration of their IVAs. The bodies issuing this guide do not accept any liability in respect of actions that IPs may take in accordance with it, as it must be for each IP to be satisfied that his/her conduct meets the legal and professional requirements placed upon office-holders. However, notwithstanding the above, IPs should have regard to the regulatory as well as legal consequences of their actions. The guide should be read in conjunction with, the following:

i. Paymex Ltd v HMRC decision [reference 2011 UKFTT 350]
ii. Joint statement issued by the RPBs and R3 dated 22 July 2011
iii. Dear IP letter no.50 issued by the Insolvency Service
iv. Briefing issued by HMRC [reference Revenue & Customs Brief 27/11]
v. HMRC VAT notice How to correct VAT errors and make adjustments or claims [Notice 700/45]
vi. Clarification notice issued by HMRC (attached)
vii. Insolvency code of ethics
viii. SIPs 1, 3, 9, & 11
ix. Clients’ money regulations/guidance
x. The definitions set out at the bottom of this page

1. Charging VAT

IPs who have not already done so should ensure that their firms stop charging VAT on invoices for fees and disbursements in IVAs with immediate effect as these are exempt supplies. IPs should also consider the current VAT quarter and whether any adjustments are required to reflect the exempt status of these supplies.

2. Claiming refunds on open cases

The effect of the Paymex ruling is that VAT on previous invoices for fees has been charged erroneously, albeit in good faith at the time. Accordingly, we believe IPs should take all appropriate measures to remedy the position for the benefit of creditors. Regardless of the absence of any obligation to do so under VAT legislation, the office-holder’s duty to maximise realisations requires a supervisor to seek recovery of sums that are due to the estate. Office-holders should also be mindful of creditors’ expectations and the exposure to action by creditors if claims are not made.  We are seeking counsel’s opinion as to whether or not Supervisors are obliged to seek refunds where the recovery would be negligible.

3. Closed cases 

The duty referred to above may or may not encompass completed (closed) cases, as the IP’s ongoing jurisdiction/locus is questionable. We are seeking counsel’s opinion on closed cases and will make a further statement as soon as reasonably practicable. IPs considering claiming refunds in such cases may wish to await that legal opinion or take their own advice before distributing any sums received. [See Footnote below]

4. Cases about to be closed 

Having regard to the above, IPs may form the view that IVAs reaching their conclusion, whether by reason of completion or termination due to failure, are cases in respect of which refund claims may be made only for as long as those cases remain open. Office holders may therefore wish to consider whether the terms of such cases permit the continuation of them pending resolution of the VAT issue, subject also to taking into account the position of the debtor.

5. Claims process 

The claims process is set out in HMRC’s Notice 700/45. The time limit for making claims is four years but not longer. Creditor agents understand this and have indicated that they will not be pressing for more.  
IPs should note that time continues to run until a claim is made.

6. Gross v NET

HMRC will pay a net sum comprising:
• output tax wrongly charged and identifiable to individual cases;
• input tax wrongly reclaimed and identifiable to individual cases;
• input tax wrongly reclaimed because of partial exemption rules (this tax is not identifiable to individual cases).

Only the net amounts will be refunded. Creditor agents have indicated that they will accept the net amounts as the reasonable and appropriate  realisation or windfall, and that they will not be pressing for any form of top-up in respect of the input tax adjustment.
As some creditors may take a different view, IPs should refer to the comment in the summary below.

7. Receipt of refunds

In order to avoid unjust enrichment, HMRC will require confirmation from the firm that sums paid will be passed without deduction to the estates from which VAT was paid in the first place. The refunded amount(s) should be paid into designated estate accounts (or a general clients’ account in respect of any closed cases) and should be transferred by the firm into those accounts as soon as they are cleared (not more than 7 days later).

These are in effect third party funds and should be segregated from those of the firm.
Where IPs are claiming refunds in respect of closed cases, they should be prepared to distribute these without delay.

8. Allocation

Where refunds include deductions for input tax wrongly claimed either in respect of case specific disbursements or as a consequence of the partial exemption rules applying, IPs will be required to calculate the appropriate amount to be credited to each estate. The simplest and most equitable method of calculation may be one that has the effect of apportioning the input tax arising from the application of the partial exemption rules across the cases rateably, i.e. if input tax represents 40% of the output tax claimed on average and consequently only 60% of output tax claimed is refunded, then each estate should receive 60% of the output tax suffered, the balance being regarded as irrecoverable VAT. 
Case specific input tax should of course be applied to that case.

9. Fees

HMRC has confirmed that once refunds have been paid into the estates, the normal IVA procedures apply and office holders may be remunerated out of estate monies in accordance with the terms of the IVAs in the usual way. It is arguable that VAT refunds are not, technically, realisations in the estates; however, creditor agents are prepared to permit office holders to consider them as such for the purposes of invoking existing fee approvals, and the regulators identified below (‘RPB’) will not regard fees drawn on this basis as improperly authorised.

In some IVAs, the nominee’s fee will have been approved on a VAT-inclusive basis. Where that is the position, subject to satisfying other terms of the IVA as modified, office holders may with good reason consider that they are entitled to the element of the refund attributable to VAT on the nominee’s fee. However, it may be seen as equitable by the creditors if the IP were to take into account any input tax adjustment necessary as per the example above, e.g. if only 60% of the VAT is recovered, then 60% would be the appropriate percentage of the VAT on the nominee’s fee to be paid to the office holder.

10. Variations

Having regard to the above, ordinarily office holders should not need to instigate variations to the terms of the IVAs. Creditor agents will not be minded to approve fees at a rate higher than those already covered by the existing terms, and regulators will look very closely at the justification for variations.

11. Queries

IPs seeking further clarification on any of the points covered in this guide may contact HMRC or one of the following bodies for assistance. This guide is issued by:

  • Association of Business Recovery Professionals, R3
  • Chartered Accountants Regulatory Body, CAI (RPB)
  • Debt Resolution Forum
  • Insolvency Practitioners Association (RPB)
  • Institute of Chartered Accountants in England & Wales (RPB)
  • The Association of Chartered Certified Accountants (RPB)
  • The Institute of Chartered Accountants of Scotland (RPB)

12. Summary

We believe the above sets out a practical way of dealing with the effects of the Paymex decision. It places an obligation on IPs to claim refunds in open IVA cases, but it seeks to deal with the process on a basis that is fair to all concerned.

Creditor agents for their part have adopted a reasonable stance in indicating their preparedness to accept net refunds and allow those monies to be subject to usual remuneration arrangements (though where firms seek to charge fees or disbursements which they consider excessive, they may reserve the right to adopt a different approach).

We are liaising with creditor agents with a view to seeking statements confirming their positions. IPs will need to be mindful of the potential for challenge by dissenting creditors, and may wish to adopt a different approach in cases where creditors not represented by the main agents are involved to a significant extent.

HMRC has offered some flexibility in relation to its principle of unjust enrichment by allowing fee arrangements to be entered into, but its insistence that refunds are paid to estates without deduction remains, and is full square with the position outlined by the regulators and R3 in their initial statement.
In accordance with normal practice, IPs should document their decisions and retain details of calculations made, and make relevant clients’ account and other records available to their regulators for inspection as part of the routine monitoring visits periodically undertaken by regulators.
Issued 31 August 2011

ANNEXE DEFINITIONS

  • IP - Insolvency Practitioner authorised by an RPB or the IS
  • RPB - Recognised Professional Body under IA86
  • IS - The Insolvency Service, an executive agency of the Secretary of State for Business, Innovation & Skills acting as Competent Authority under IA86
  • IA86 -  Insolvency Act 1986, as amended
  • Office holder - IP acting as Nominee/Supervisor as defined in IA86 in relation to an IVA
  • IVA - Individual Voluntary Arrangement as defined in IA86
  • HMRC - Her Majesty’s Revenue & Customs
  • VAT -  Value Added Tax
  • SIP - Statement of Insolvency Practice
  • Regulators - RPBs and the IS
  • Firm -  VAT-registered entity, partnership or company, in association with which the IP carries out his/her office holder duties
  • Office a/c - Bank account in the name of the firm
  • Clients’ a/c - Bank account satisfying the definition in the RPBs’ Clients’ Money Regulations
  • Estate - Trust managed by the office holder on behalf of creditors and/or other beneficiaries
  • Estate fund - Monies held in the estate
  • Estate a/c - Bank account operated on trust principles for an estate
  • TiB - Trustee in Bankruptcy – an IP acting as such in relation to a bankruptcy 
  • trustee - IP acting as trustee of a continuing express or implied trust subsequent to completion of an IVA
  • Creditor - Person, corporate or otherwise, owed money by the debtor, where that person’s claim is admitted by the office holder for dividend purposes
  • Creditor agent - Third party acting on behalf of and with the authority to exercise voting rights for one or more creditors, or a debt purchaser with such rights
  • Debtor -  Individual subject to an IVA
  • Bankrupt - Debtor subject to bankruptcy proceedings subsequent to failure of an IVA
  • OR - Official Receiver (part of the IS) acting as TiB in the absence of an IP appointed for that purpose
  • Fees - Office holder remuneration (and charges for disbursements) as approved by creditors in accordance with the terms of an IVA as modified or varied
  • Nominee - IP’s role in the period immediately prior to approval of an IVA, in respect of which an agreed fee may have been approved /modified by creditors
  • Supervisor - IP’s role subsequent to approval of an IVA, in respect of which a fee may have been approved by creditors

FOOTNOTE

The advice on closed cases will cover points about refunds flowing to debtors or to an OR/TiB where the debtor has become bankrupt, and where a debtor is due monies from a case after creditors have been paid in full, and will address concerns regarding fees, as any fee approval given by creditors in the IVA may be regarded as having expired.

Insolvency Group, August 2011

IVA protocol

It was developed after extensive work and cooperation by those representing debtors, lenders, insolvency practitioners and regulatory and representative bodies.

The ongoing effectiveness of the protocol will be overseen by a standing committee, on which the ICAEW is represented. The IVA protocol and related documents are available on the Insolvency Service's website.

The British Banking Association (BBA) has confirmed that its members will support the protocol but it cannot commit non-BBA creditors. You can view a list of BBA members on the British Banking Association (BBA) website.

The standing committee has a remit to keep the protocol under review. You can let us know how you think the protocol is working by emailing ivaprotocol@icaew.com.

VAT Tribunal decision in the case of Paymex Limited v HMRC

Following on from the abovementioned business brief, HMRC wish to offer further clarification on the following points which may be of interest or concern to the insolvency profession.

  • Although the Tribunal decision itself applied purely to consumer IVAs, HMRC consider that the terms of the Tribunal decision read across to all IVAs.  The important point for IPs to consider here is not the specific type of IVA but rather whether the nature of the services they provide are covered by the terms of the Paymex Limited ruling.
  • Although HMRC does not consider the terms of the Tribunal decision to be restricted to a particular type of IVA, the Tribunal decision does not deal with company voluntary arrangements (CVAs) or partnership voluntary arrangements (PVAs). If IPs consider, on the basis of the Paymex Limited ruling, that they have overpaid VAT arising from their role as supervisors of CVAs or PVAs and seek to reclaim such VAT, these claims will be rejected.
  • The effect of the Tribunal ruling is that IPs may have overpaid VAT where their services in an IVA are covered by the terms of the ruling.  IPs affected are therefore entitled, but not obliged, to claim a refund of wrongly declared output VAT, under Section 80 of the VAT Act 1994.  However, IPs may also have reclaimed input VAT in such cases to which, following the Tribunal ruling, they may not have been entitled.  Refunds will only be issued for the balance of output VAT wrongly declared on the services in question less any input VAT wrongly deducted on the assumption that the supplies to which it was attributable were taxable.
  • The input tax that will be deducted for the amount claimed will be both that input tax that was directly attributable to the supplies of services in question and, if the IP was already partially exempt, the appropriate percentage of the overhead or residual input VAT.
  • Public Notice VAT 700/45, ‘How to correct VAT errors and make adjustments or claims’ explains how to go about claiming a refund in this circumstance.
  • If the IP was fully taxable for the period covered by the claim then making a claim for a refund of wrongly declared output VAT will have the effect of making him partially exempt for the period of the claim.  In that event, he will have to calculate the percentage of overhead or residual input VAT that should have been blocked.
  • Although input tax must be taken account of by IPs when claiming refunds of overdeclared VAT as above, HMRC will not seek to recover input tax previously overclaimed in the light of this ruling in any cases other than those in which a claim for a refund of overdeclared VAT is made.  If the IP chooses not to ‘disturb the past’, HMRC will not disturb it either.  It is entirely a matter for the IP whether to claim a refund under Section 80 of the VAT Act or not.  Nothing in VAT legislation obliges him to do so.
  • Claims for a refund of overdeclared VAT are subject to normal capping rules.  Claims for repayment will therefore not be considered for periods ending more than four years before the date on which the claim is made.
  • HMRC can reject claims where they are able to show that the claimant would be unjustly enriched by payment of his claim.
  • If an IP decides to claim a refund under Section 80 of the VAT Act and reimburse his customers under Section 80A and Regulations 43A TO 43G of the VAT Regulation 1995, he must reimburse the total amount paid to him by HMRC in cash or by cheque.  He is not entitled to deduct any amount by way of administration fee etc.  This is expressly stipulated in Regulation 43C(b) of the VAT Regulations 1995, which states that ‘no deduction will be made from the relevant amount by way of fee or charge (howsoever expressed or effected)’.
  • Once the refund is paid into the IVA estate in its entirety, the refund then becomes an asset of the estate.  Any subsequent question of IP’s costs will be determined by the terms of the actual arrangement in accordance with insolvency legislation.
  • Any claim made under Section 80 of the VAT Act 1994.  It must set out the basis of the error and the amount being claimed and show how that amount has been calculated.  The claimant must be able to provide copies of the documentation used in the calculation of the claim on request.  An ‘estimated’ claim, or a declared intention to lodge a claim at a future date, will not stop the clock running on the four year cap.
  • In cases where the debtor was registered for VAT, the debtor will already have reclaimed input VAT at the time on the supplies on which output VAT was incorrectly charged.  Therefore, claims for refund of incorrectly charged output VAT under Section 80 of the VAT Act must be restricted to those cases in which the debtor was not registered for VAT at the time of the supplies in question.
  • Where IPs intend to declare additional dividends to creditors in IVAs from money refunded by HMRC, HMRC’s Voluntary Arrangements Service is happy to accept one collated payment covering all of the IVAs concerned if possible, provided the IP can still identify the proportion of that dividend for individual IVAs.

HMRC hopes the above information assists the insolvency profession by further clarifying HMRC’s view of the impact of the Tribunal ruling in this case.  IPs may request further advice on the correct VAT treatment in individual cases by contacting the VAT Helpline on Tel 0845 010 9000.

Insolvency Group, August 2011

Please note:

Views expressed in this article are those of the author and may not represent ICAEW policy. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the publisher or authors.

Further support

VAT Tribunal decision in the case of Paymex Limited v HMRC

Following on from the abovementioned business brief, HMRC wish to offer further clarification on the following points which may be of interest or concern to the insolvency profession.

  • Although the Tribunal decision itself applied purely to consumer IVAs, HMRC consider that the terms of the Tribunal decision read across to all IVAs.  The important point for IPs to consider here is not the specific type of IVA but rather whether the nature of the services they provide are covered by the terms of the Paymex Limited ruling.
  • Although HMRC does not consider the terms of the Tribunal decision to be restricted to a particular type of IVA, the Tribunal decision does not deal with company voluntary arrangements (CVAs) or partnership voluntary arrangements (PVAs). If IPs consider, on the basis of the Paymex Limited ruling, that they have overpaid VAT arising from their role as supervisors of CVAs or PVAs and seek to reclaim such VAT, these claims will be rejected.
  • The effect of the Tribunal ruling is that IPs may have overpaid VAT where their services in an IVA are covered by the terms of the ruling.  IPs affected are therefore entitled, but not obliged, to claim a refund of wrongly declared output VAT, under Section 80 of the VAT Act 1994.  However, IPs may also have reclaimed input VAT in such cases to which, following the Tribunal ruling, they may not have been entitled.  Refunds will only be issued for the balance of output VAT wrongly declared on the services in question less any input VAT wrongly deducted on the assumption that the supplies to which it was attributable were taxable.
  • The input tax that will be deducted for the amount claimed will be both that input tax that was directly attributable to the supplies of services in question and, if the IP was already partially exempt, the appropriate percentage of the overhead or residual input VAT.
  • Public Notice VAT 700/45, ‘How to correct VAT errors and make adjustments or claims’ explains how to go about claiming a refund in this circumstance.
  • If the IP was fully taxable for the period covered by the claim then making a claim for a refund of wrongly declared output VAT will have the effect of making him partially exempt for the period of the claim.  In that event, he will have to calculate the percentage of overhead or residual input VAT that should have been blocked.
  • Although input tax must be taken account of by IPs when claiming refunds of overdeclared VAT as above, HMRC will not seek to recover input tax previously overclaimed in the light of this ruling in any cases other than those in which a claim for a refund of overdeclared VAT is made.  If the IP chooses not to ‘disturb the past’, HMRC will not disturb it either.  It is entirely a matter for the IP whether to claim a refund under Section 80 of the VAT Act or not.  Nothing in VAT legislation obliges him to do so.
  • Claims for a refund of overdeclared VAT are subject to normal capping rules.  Claims for repayment will therefore not be considered for periods ending more than four years before the date on which the claim is made.
  • HMRC can reject claims where they are able to show that the claimant would be unjustly enriched by payment of his claim.
  • If an IP decides to claim a refund under Section 80 of the VAT Act and reimburse his customers under Section 80A and Regulations 43A TO 43G of the VAT Regulation 1995, he must reimburse the total amount paid to him by HMRC in cash or by cheque.  He is not entitled to deduct any amount by way of administration fee etc.  This is expressly stipulated in Regulation 43C(b) of the VAT Regulations 1995, which states that ‘no deduction will be made from the relevant amount by way of fee or charge (howsoever expressed or effected)’.
  • Once the refund is paid into the IVA estate in its entirety, the refund then becomes an asset of the estate.  Any subsequent question of IP’s costs will be determined by the terms of the actual arrangement in accordance with insolvency legislation.
  • Any claim made under Section 80 of the VAT Act 1994.  It must set out the basis of the error and the amount being claimed and show how that amount has been calculated.  The claimant must be able to provide copies of the documentation used in the calculation of the claim on request.  An ‘estimated’ claim, or a declared intention to lodge a claim at a future date, will not stop the clock running on the four year cap.
  • In cases where the debtor was registered for VAT, the debtor will already have reclaimed input VAT at the time on the supplies on which output VAT was incorrectly charged.  Therefore, claims for refund of incorrectly charged output VAT under Section 80 of the VAT Act must be restricted to those cases in which the debtor was not registered for VAT at the time of the supplies in question.
  • Where IPs intend to declare additional dividends to creditors in IVAs from money refunded by HMRC, HMRC’s Voluntary Arrangements Service is happy to accept one collated payment covering all of the IVAs concerned if possible, provided the IP can still identify the proportion of that dividend for individual IVAs.

HMRC hopes the above information assists the insolvency profession by further clarifying HMRC’s view of the impact of the Tribunal ruling in this case.  IPs may request further advice on the correct VAT treatment in individual cases by contacting the VAT Helpline on Tel 0845 010 9000.

Insolvency Group, August 2011

Please note:

Views expressed in this article are those of the author and may not represent ICAEW policy. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the publisher or authors.

Further support

Real time information in insolvencies - guidance from R3 and HMRC

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In response to concerns raised about the operation of RTI in formal insolvency proceedings and the problems that may arise as a consequence of the disruption which accompanies such proceedings, HMRC and R3 issued a joint note to explain the current position.

VAT on supervisors' fees (Paymex) - HMRC note

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In response to insolvency practitioners request for clarification in light of the VAT Tribunal decision in the case of Paymex Limited and the subsequent HMRC Briefs published in response to the Paymex ruling, HMRC published this note to R3.

Data protection and insolvency

The Data Protection Act 1998 (DPA) came into force on 1 March 2000. It sets rules for companies and organisations that deal with personal data. Personal data is information that identifies living individuals. The DPA applies to the processing of personal information and extends to some paper records as well as those held electronically. Its scope is very wide and it imposes a number of obligations. Some obligations are quite onerous on those involved in the processing of personal data. The information on this page is aimed at insolvency practitioners and does not go into detail about the basics of data protection.

Guidance on corporate insolvency casework

The resources in this section support the work of ICAEW licensed insolvency practitioners and their staff who undertake formal corporate insolvency appointments under the Insolvency Act 1986 (and associated legislation). Guidance and checklists providing information on: liquidations (voluntary and compulsory), company voluntary arrangements (CVAs), administrations, moratoriums and administrative receiverships.

Your insolvency compliance review

Access guidance to support the work of ICAEW licensed Insolvency Practitioners (IPs) and their staff in conducting insolvency compliance reviews. Available guidance includes frequently asked questions, helpsheets, forms and checklists.

*Please see our disclaimer below before accessing these documents.

Disclaimer: helpsheets and checklists

This guidance is designed to support the work of ICAEW licensed Insolvency Practitioners and their staff.

Our helpsheets provide support on the preparation of insolvency compliance reviews, on running insolvency practices, as well as technical help. The helpsheets will also help you to comply with the requirements of ICAEW’s insolvency licensing regulations and guidance.

Our personal and corporate insolvency checklists may be useful when you review your formal appointments. They're not an exhaustive statement of the law and best practice but they give staff with insolvency experience the key areas to consider.

ICAEW doesn’t give any guarantee or warranty regarding the accuracy of the checklists or helpsheets none of which should be treated as a substitute or replacement for the user’s own knowledge or legal advice.