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Revenue & Customs Brief 27/11 explains the implications of the First-tier Tribunal decision in Paymex Ltd (TC1210).
The tribunal agreed with Paymex that the liability of the services of insolvency practitioners is exempt from VAT when supervising consumer individual voluntary arrangements.
An individual voluntary arrangement is made and conducted in the context of a statutory framework and can only be conducted by a licensed insolvency practitioner. It enables an insolvent individual to make a proposal for an individual voluntary arrangement with their creditors.
The insolvency practitioner carries out two services: nominee services that involve the preparation of the proposal to be agreed between the debtor and their creditors, and supervisory services involving the supervision and monitoring of the agreement, including taking regular payments from the debtor and paying creditors in accordance with the agreement.
The tribunal decided both the nominee and supervisory services of an insolvency practitioner constitute a single exempt supply for VAT purposes. It concluded that the two core elements were negotiation of debts and transactions concerning payments and, as the tribunal had found both core elements to be exempt, it was not necessary to determine which of the supplies was dominant.
However, had been necessary to do so, the tribunal would have found negotiation to be the core supply.
HMRC say they will not be appealing the decision and will pay claims for overpaid tax charged on the services of insolvency practitioners that fall within the findings.
