Institutes may join forces over HMRC's VAT refund stance

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.