LICENSING BODIES should join forces and confront the taxman about VAT charges on personal insolvency procedures, according to ACCA head of taxation Chas Roy-Chowdhury.
Earlier this year HM Revenue & Customs lost a legal battle against debt advice business Paymex, which now means practitioners' supervisory role in a personal insolvency is VAT exempt.
Although the largest institutes, which license insolvency practitioners, issued guidance on how to reclaim past VAT paid, HMRC issued its own outline which Roy-Chowdhury claims is a "veiled threat".
The HMRC guidance which was issued earlier this month included: "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 suggested the licensing bodies including ICAEW, CIMA and IPA should "co-ordinate a discussion with HMRC" to clarify the issue.
The bodies had issued their own outline advising practitioners under which circumstances and how they could reclaim VAT.
HMRC lost its court battle against debt advice business Paymex which tried to reclaim its VAT payments on an Individual Voluntary Arrangement (IVA) - where an insolvency practitioner consolidates a person's debt, arranges and supervises repayment.
According to the judgment, Paymex's supervisory role should have been VAT exempt. the decision has sent shockwaves through the profession which has seen about 48,000 IVAs arranged in the last 12 months.
Roy-Chowdhury lashed out at the taxman's 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."
He estimates the taxman could owe a significant sum of VAT refunds to insolvency practitioners, which could run into hundreds of millions of pounds.
ACCAs head of taxation added that the same exemption could apply to other insolvency procedures including a Company Voluntary Arrangement which works in a similar fashion to an IVA.
However, he claimed HMRC were not being proactive in clarifying whether supervisory roles in corporate administrations were also exempt. He said it looked as though the taxman was instead waiting for a legal challenge.
I received this letter. I also saw guidance that stated that if my firm reclaimed the VAT (which has to be paid over to the estates, we do not keep it) the quarters for which we are claiming need to be considered as to whether we should have restricted the practice's input VAT claim.
I interpreted this paragraph as saying that if we reclaimed VAT they would look at the previous returns with a view to getting some input VAT back from us if it shouldn't have been reclaimed. I don't personally think this is particularly outrageous - more a case of not having your cake and eating it.
This was covered in the joint statements from the regulators and we seem to be allowed to apportion any input reclaims as a cost. We do, however, have a choice as to whether to claim or not though there is already pressure from one creditor to do so.
Posted by: Manchester IP, 04 Oct 2011 | 10:54
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