HM Revenue and Customs Brief 35/11
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Issued on 20 September 2011
VAT Tribunal decision in the case of Paymex Limited v HMRC
HM Revenue & Customs (HMRC) recently issued a
Business Brief (Revenue & Customs Brief 27/11) in response to
the VAT Tribunal decision in the case of Paymex Limited v HMRC, dealing
with the VAT liability of services provided by an Insolvency
Practitioner (IP) in an Individual Voluntary Arrangement (IVA).
Following on from the above mentioned Business Brief, HMRC
wishes to offer further clarification on the following points which may
be of interest or concern to the insolvency profession:
- Although the Tribunal decision itself applied purely to
consumer IVAs, HMRC considers that the terms of the Tribunal decision
read across to all IVAs. The important point for IPs to consider here
is not the specific type of IVA but rather whether the nature of the
services they provide are covered by the terms of the Paymex Limited
- Although HMRC does not consider the terms of the Tribunal
decision to be restricted to a particular type of IVA, the Tribunal
decision does not deal with Company Voluntary Arrangements (CVAs) or
Partnership Voluntary Arrangements (PVAs). If IPs consider, on the
basis of the Paymex Limited ruling, that they have overpaid VAT arising
from their role as supervisors of CVAs or PVAs and seek to reclaim such
VAT, these claims will be rejected.
- The effect of the Tribunal ruling is that IPs may have
overpaid VAT where their services in an IVA are covered by the terms of
the ruling. IPs affected are therefore entitled, but not obliged, to
claim a refund of wrongly declared output VAT, under Section 80 of the
VAT Act 1994. However, IPs may also have reclaimed input VAT in such
cases to which, following the Tribunal ruling, they may not have been
entitled. Refunds will only be issued for the balance of output VAT
wrongly declared on the services in question less any input VAT wrongly
deducted on the assumption that the supplies to which it was
attributable were taxable.
- The input tax that will be deducted for the amount claimed
will be both that input tax that was directly attributable to the
supplies of services in question and, if the IP was already partially
exempt, the appropriate percentage of the overhead or residual input
- Public Notice VAT 700/45 How to correct VAT errors and
make adjustments or claims explains how to go about claiming a refund
in this circumstance.
- If the IP 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 input tax must be taken account of by IPs when
claiming refunds of overdeclared VAT as above, 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. 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.
Nothing in VAT legislation obliges them to do so.
3. Time limits
- Claims for a refund of overdeclared VAT are subject to
normal capping rules. Claims for repayment will therefore not be
considered for periods ending more than four years before the date on
which the claim is made.
- Any claim made under Section 80 of the VAT Act 1994 must
set out the basis of the error and the amount being claimed and show
how that amount has been calculated. The claimant must be able to
provide copies of the documentation used in the calculation of the
claim on request. An 'estimated' claim, or a declared intention to
lodge a claim at a future date, will not stop the clock running on the
four year cap.
4. Unjust enrichment
- HMRC can reject claims where they are able to show that
the claimant would be unjustly enriched by payment of his claim.
- If an IP decides to claim a refund under Section 80 of the
VAT Act and reimburse his customers under Section 80A and Regulations
43A TO 43G of the VAT Regulation 1995, they must reimburse the total
amount paid to them by HMRC in cash or by cheque. They are not entitled
to deduct any amount by way of administration fee etc. This is
expressly stipulated in Regulation 43C(b) of the VAT Regulations 1995,
which states that 'no deduction will be made from the relevant amount
by way of fee or charge (howsoever expressed or effected)'.
- Once the refund is paid into the IVA estate in its
entirety, the refund then becomes an asset of the estate. Any
subsequent question of IPís costs will be determined by the terms of
the actual arrangement in accordance with insolvency legislation.
Where IPs intend to declare additional p to creditors
in IVAs from money refunded by HMRC, HMRC's Voluntary Arrangements
Service is happy to accept one collated payment covering all of the
IVAs concerned if possible, provided the IP can still identify the
proportion of that p for individual IVAs.
HMRC hopes the above information assists the insolvency
profession by further clarifying HMRC's view of the impact of the
Tribunal ruling in this case. IPs may request further advice on the
correct VAT treatment in individual cases by contacting the VAT
Helpline on Tel 0845 010 9000.
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© Crown Copyright 2011.
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for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2011-09-26 11:56:36 in Tax Articles