HMRC has clarified the VAT treatment of supplies of insolvency practitioner (IP) services by IP firms involved in company and individual voluntary arrangements, following the outcome of the Paymex case at VAT tribunal in 2011.
In its latest Brief 17/13, HMRC says it is responding to requests from IPs for greater clarity over its advice that 'where the IP acts only as the supervisor and has not previously acted as a nominee then these supplies will be taxable at the standard rate' in the light of the Paymex ruling.
The Tribunal decided that the services of an IP, including both the nominee and supervisory stages, constitute a single exempt supply for VAT purposes. The Tribunal went on to decide that the two core elements were negotiation of debts and transactions concerning payments. Since it had found both core elements to be exempt, it was not necessary for the Tribunal to determine which of the supplies were dominant. However it stated that if it had been necessary for it to do so it would have found negotiation to be the 'core' supply.
For the services of an IP to be covered by the Paymex ruling therefore, HMRC says that those services must constitute a single supply for VAT purposes including both the nominee and supervisory stages. Whilst it does not dispute that the nominee element of the supply is exempt for VAT purposes, HMRC says it does not accept that the supervisory stage, when provided alone, can always be deemed as exempt.
In Brief 17/13 HMRC states that where an IP firm provides the services of a supervisor in a voluntary arrangement and no-one from that firm has previously acted as nominee in that particular voluntary arrangement then the supplies made by the supervisor remain taxable at the standard rate.
As examples, HMRC says that where the nominee and supervisor are in the same firm then 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 IP, then the supervisor's fees will be standard rated, as they will also be where a new firm acquires a portfolio of cases and a new supervisor is appointed. If a new firm acquires a portfolio of cases but the supervisor moves across with the cases and so remains in office, then the supervisor's fees will be standard rated.
HMRC says the only exception would be if an IP can demonstrate that the core part of their service as supervisor is debt negotiation, in which case HMRC would consider exemption. However, the briefing states that 'as this is usually not the prime purpose of the supervisor or the main role that a supervisor undertakes this situation is unlikely to arise in practice'.
In case of standalone CVAs, where an IP from the same firm acts as both nomine and supervisor so that their services constitute a single supply for VAT purposes and the core activity at the nominee stage consists of debt negotiation, then the supply will be exempt. If the CVA is part of an exit route from administration then HMRC says it is unlikely that the administrator's activities prior to the beginning of the CVA would consist primarily of debt negotiation and the supervisor's fees would therefore be standard rated.
