ACCA lashes out at HMRC VAT guidance

HM REVENUE & CUSTOMS is giving out the wrong advice about possible VAT refunds on personal insolvency cases, according to ACCA head of taxation Chas Roy-Chowdhury.

Earlier this year HMRC lost a legal battle against debt advice business Paymex, which now means practitioners’ supervisory role in a personal insolvency is VAT exempt.

However, HMRC issued guidance this month on reclaiming VAT which included a “veiled threat” warning practitioners not to dig too much into the past.

“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.”

Roy-Chowdhury (pictured) lashed out at the guidance, claiming: “HMRC need to recognise the reality of the situation and set the record straight and help IPs understand their tax position.

“HMRC should accept they are giving the wrong advice and make it as simplified as possible, rather than go through a huge amount of legwork.”

In the summer, the recognised professional licensing bodies issued guidance on how insolvency practitioners (IPs) could go about making reclaims of VAT.

ACCA’s head of taxation believes HMRC’s latest guidance goes against the principles the licensing bodies issued this year.

The Paymex case centres around VAT paid on an Individual Voluntary Arrangement – where an IP consolidates a person’s debt, arranges and supervises the repayment.

The judge in the Paymex case ruled that the supervisory role should be VAT exempt.

Roy-Chowdhbury estimates the taxman could owe hundreds of millions in VAT refunds.