Brief aims at settling doubt over insolvency experts’ fees

Tax officials have moved to placate uncertainty about the VAT treatment of insolvency practitioners who act as supervisors while not having previously acted as nominees, following the First-tier Tribunal decision in Paymex Ltd (TC1210) and the HMRC publications in response to the ruling.

The department has produced Revenue & Customs Brief 17/13 to confirm the treatment:

• If the nominee and supervisor are in the same firm, their services to the debtor would comprise a single exempt supply.
• Where a supervisor from a different firm is appointed either at the creditors meeting or subsequently as a successor practitioner, the supervisor’s fees will be standard rated.
• Where a new firm acquires a portfolio of cases and a new supervisor is appointed, the supervisor’s fees will be standard rated.
• Where a new firm acquires a portfolio of cases but the supervisor moves across with the cases so remains in office, the supervisor’s fees will be standard rated.
• The only exception would be if an insolvency practitioner can demonstrate that the core part of the service as supervisor is debt negotiation, in which case HMRC would consider exemption – but this is unlikely to arise in practice because it is usually not the prime purpose.

With regards to standalone company voluntary arrangements, the supply will be exempt where a practitioner from the same firm acts as both nomine and supervisor so that his services constitute a single supply for VAT purposes and the core activity at the nominee stage consists of debt negotiation.

If the arrangement is part of an exit route from administration, it is unlikely that the administrator’s activities prior to the beginning of the arrangement would consist primarily of debt negotiation. The supervisor’s fees would therefore be standard rated.

Issue: 4411 / Categories: News , VAT