HMRC Insolvency Guidance – VAT processing
HMRC has issued guidance regarding changes to its IT systems, which are impacting VAT processing in insolvency cases.
As a result of the guidance, discussions with HMRC and communications from our members, ICAS understands that there are potentially significant delays in relation to:
- the processing of notifications of insolvency via VAT 769;
- the issue and processing of post-insolvency returns (VAT 100);
- the processing of requested repayments via VAT 426 or VAT 427; and
- receipt of final clearance.
ICAS is actively working with HMRC, the other RPBs and R3 to identify where it may be possible to establish workarounds to some of these issues in the period before a permanent resolution to the issues can be implemented.
VAT assignment
As a result of Regulation 9 of the VAT Regulations, which treats an insolvency practitioner (IP) as the taxable person only for the duration of their office, HMRC is unable to make repayments of VAT once an IP has vacated office.
This issue may be exacerbated by the delays currently being experienced. HMRC is aware that this can sometimes cause practical problems for IPs who are unable to delay the vacation of office pending receipt of an expected VAT refund, for example in an Administration which automatically comes to an end (unless extended) after a period of 12 months.
To facilitate the IP vacating office, HMRC previously agreed that an office holder can assign a VAT refund to a third party (e.g. their firm where the refund amount will discharge the balance of an outstanding fee) prior to vacating office via a Deed of Assignment and accompanying Notice of Assignment. The Notice of Assignment should be submitted in duplicate, one copy to be endorsed by HMRC to confirm receipt and then returned to the assignee. Only one copy of the Deed of Assignment should be submitted. The Deed can be used for repayment claims made on either a VAT 426 or a VAT return.
Such an assignment should not be used routinely when closing an insolvency case, only in exceptional circumstances where considered absolutely necessary.
Further issues
If any Member has identified an issue of exceptional urgency not specifically covered in this communication, or has any suggestions for interim procedures they would like to propose to HMRC, please email details to swood@icas.com