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HMRC have clarified points of interest following the First-tier Tribunal decision in Paymex Ltd (TC1210), which dealt with the VAT liability of services provided by an insolvency practitioner in an individual voluntary arrangement.
Although the decision applied purely to consumer individual voluntary arrangements, the Revenue considers that the ruling’s terms relate to all arrangements.
The important point for insolvency practitioners to consider is not the specific type of arrangement, but whether the nature of the services they provide are covered by the terms of the decision.
The department considers that the decision does not deal with company voluntary arrangements or partnership voluntary arrangements.
The effect of the case is that insolvency practitioners may have overpaid VAT, and will be entitled to claim a refund of wrongly declared output VAT. However, they may also have reclaimed input VAT to which, following Paymex Ltd, they may not have been entitled.
Refunds will be issued for the balance of output VAT wrongly declared on the services in question, less any input VAT wrongly deducted on the assumption the supplies to which it was attributable were taxable.
In Revenue & Customs Brief 35/11, HMRC say input tax deducted for the amount claimed will be both the input tax that was directly attributable to the supplies of services in question and, if the practitioner was already partially exempt, the appropriate percentage of the overhead or residual input VAT.
If the practitioner was fully taxable for the period covered by the claim then making a claim for a refund of wrongly declared output VAT will have the effect of making them partially exempt for the period of the claim. In that event, they will have to calculate the percentage of overhead or residual input VAT that should have been blocked.
Although practitioners must take account of input tax when claiming refunds of overdeclared VAT, HMRC will not seek to recover input tax previously overclaimed in the light of this ruling in any cases other than those in which a claim for a refund of overdeclared VAT is made.
