VAT exemption for IVA services
Insolvency bodies' statement to practitioners regarding Individual Voluntary Arrangements.
Practitioners will no doubt be aware from various circulars of the recent decision in the case of Paymex Ltd v HMRC and the issues arising in respect of potential refund claims in IVA cases where VAT has been charged (perhaps wrongly, in the light of this decision) and paid over to HMRC. Questions have been posted to the regulators, R3 and those providing compliance services, about some of the points requiring clarification.
HMRC has confirmed that it will not be appealing the decision. Whilst we are not in a position to issue definitive advice, we would remind practitioners of the following principles which should be taken into account when considering what action if any they may contemplate in respect of VAT previously charged and paid to HMRC:
- Practitioners acting as nominee and/or supervisor do so in accordance with basic trustee principles which should ensure that they act in the best interests of the beneficiaries of the estates over which they have been appointed.
- Where an estate has suffered a charge for VAT, practitioners should give very careful consideration to the identity of the appropriate recipient of any refund obtained, and ordinarily we would expect the estate to be the beneficiary of such a refund.
- Whether a practitioner (where still acting as supervisor) is able to draw the funds received (in whole or part) as remuneration will depend on the terms and conditions of each IVA, as modified and/or varied.
Questions relating to the position on closed cases are less straightforward. Practitioners may wish to take advice on whether they have the locus to claim a refund in respect of such cases, having regard to the above principles.
Practitioners may also wish to consider whether they should lodge with HMRC protective notice of their intention to claim refunds, with a view to fixing the claim period and potentially maximising recoveries.
There may be some expectation amongst creditors and their representatives that practitioners should instigate claims, at least in open cases, irrespective of any personal or self-interest consequential issues that may arise for practitioners or their VAT-registered firms – consideration should be given to the extent to which there is an obligation to do this, subject of course to agreeing with relevant stakeholders an appropriate level of remuneration for carrying out the necessary work.
Practitioners should consider whether there is a strong authority not to charge VAT on fees going forward. Were that stance to be adopted, and where nominees’ fees are approved by creditors on a VAT-inclusive basis, it might be prudent to provide for the potential VAT liability.
This statement has been agreed and issued on 22nd July 2011 by the following:
- Association of Business Recovery Professionals
- Association of Chartered Certified Accountants
- Insolvency Practitioners Association
- Institute of Chartered Accountants in England & Wales
A similarly worded statement may be issued by other bodies in due course; The Insolvency Service issued a statement in its ‘Dear IP 50’.