Chas Roy-Chowdhury, the head of taxation at ACCA, claims that HMRC is giving out incorrect advice about the possibility of a refund of VAT in cases of personal insolvency.
Earlier this year, the Revenue lost a case against Paymex, a debt advice business, and as a result the supervisory role of practitioners in personal insolvency cases is now VAT exempt.
However, last month HMRC published guidance on reclaiming VAT and it contained what Roy-Chowdhury says is a “veiled threat” warning practitioners that they should not dig too deeply into the past. If an independent practitioner does not want to disturb the past, the Revenue will not do so either and it is totally up to the IP whether or not to claim a VAT refund.
Mr Roy-Chowdhury said HMRC needs to set the record straight so that IPs understand their position regarding tax. He believes the latest guidance goes against that issued by recognised professional licensing bodies in the summer.
He said the licensing forces, including CIMA, ICAEW and IPA, should unite and seek discussions to clarify the problem with the Revenue. Furthermore, he estimates that HMRC could owe hundreds of millions of pounds to insolvency practitioners in VAT refunds.
The Paymex case centred around an Individual Voluntary Arrangement and Roy-Chowdhury believes the VAT exemption could apply to insolvency procedures that work in a similar way – such as a Company Voluntary Arrangement. But, HMRC is not proactive when it comes to clarifying whether IPs with a supervisory role in corporate administrations are also exempt.
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