| HMRC Reference:Notice 700/56 (November 2011) | View Change History |
1.1 What is this notice about?
1.2 Who should read this notice?
1.4 Further information and advice
1.5 Voluntary Arrangement Service
2.2 What types of insolvency are there?
2.4 Business rescue procedures
2.5 Procedures not treated as insolvencies
3.1 How do I notify you of an insolvency?
3.2 When is Form VAT 769 not applicable?
3.3 Who is responsible for the information supplied on Form VAT 769?
3.4 How do I complete Form VAT 769?
3.5 Office holder appointed after an official receiver
3.6 Liquidators appointed after the appointment of an administrative receiver
3.7 Liquidator or trustee appointed after an official receiver
5.1 Where should I send VAT returns?
6.2 When is deregistration applicable?
6.4 Types of insolvency excluded from the automatic deregistration process
7.1 Accounting for tax after deregistration
7.5 Who cannot use Form VAT 426?
7.6 What you can and cannot claim on the Form VAT 426
7.7 Where should I send completed VAT 426 claims?
8.2 What happens when part of a claim is paid as a dividend?
9. Bankrupt continues to trade
9.2 Accounting for tax in your period of office
11.2 How does insolvency affect cash accounting?
11.3 Post-insolvency cash accounting adjustment
12.1 Further information about credit notes
14.2 Bankruptcies and compulsory winding up
15.1 When is a business partly exempt?
15.2 Annual adjustments for insolvent businesses that are partly exempt
15.3 Insolvent traders and the Capital Goods Scheme (CGS)
15.4 Insolvent traders' circumstances which may be affected by partial exemption
16.1 How we deal with partnerships
16.3 One or more partners remain solvent
16.4 Partnership wound up but individual partners remain solvent
16.5 Insolvent partners with different relevant dates
17.1 Receivers appointed under the Law of Property Act 1925
18. Transfer of a business as a going concern (TOGC)
18.1 What are the implications of a TOGC?
18.2 How office holders may apply for a TOGC
19. Retention of insolvent trader's records
19.1 How long do I need to keep books, papers and records?
20.1 Where do I send VAT forms?
Do you have any comments or suggestions?
This notice cancels and replaces Notice 700/56 January 2006. Details of any changes to the previous version can be found in paragraph 1.1 of this notice.
This notice explains:
Although this notice details VAT procedures, it can be applied to cases where traders are involved in another indirect tax or duty administered by HM Revenue & Customs (HMRC).
This notice has been restructured to improve readability.
This notice and others mentioned are available both on paper and on our website.
This notice is aimed at insolvency practitioners and official receivers (office holders) who are dealing with the business activities of VAT registered traders.
This notice does not have force of law but it explains how we interpret the law on insolvency processes in relation to VAT.
If you have an enquiry, concerning a specific VAT insolvency or administration order case, please quote the VAT registration number and send it in the first instance to the following address:
HMRC
National Insolvency Unit
3rd Floor N/W
Queens Dock
Liverpool
L74 4AA
If you require further guidance on insolvency procedures, you can contact the Insolvency Helpdesk at the above address or phone: 0151 703 8450. You can also e-mail the Insolvency Helpdesk at InsolvencyHelpdesk@hmrc.gsi.gov.uk
The Voluntary Arrangement Service at Worthing deals with voluntary arrangements. All voluntary arrangement proposals for HMRC as well as VAT 769 notification forms for voluntary arrangements, should be sent to the following address:
HMRC
Voluntary Arrangement Service
Durrington Bridge House
Barrington Road
Worthing
West Sussex
BN12 4SE
Tel: 01903 701 424
Fax: 01903 701 402
E-mail: eovasupport, id (EO Worthing)Law
Insolvency occurs when individuals or businesses:
We refer to the official receiver, or to the insolvency practitioner appointed over an insolvent business's affairs, as the 'office holder'.
Office holders are liable to account for VAT in the normal way following their appointment.
There are various types of insolvency procedure into which a VAT registered business may enter.
Insolvencies are defined in law. In this notice we have grouped them into:
Where appropriate, the date that establishes our claim in the insolvency (the relevant date) appears after the definition.
An administrative receiver may be appointed to manage the affairs of a company by a secured creditor who holds a debenture agreement containing floating, or fixed and floating, charges over the whole, or substantially the whole, of a company's assets.
Upon the appointment of the administrative receiver, the floating charges will crystallise.
The administrative receiver must treat the business assets covered by the charges in such a way as to recover the money due to the secured creditor. If the administrative receiver deems it to be in the best interests of the secured creditor, the business will continue to trade.
We take the date of the receiver's appointment as the relevant date.
A bankrupt is an individual against whom the court has made a bankruptcy order.
The court can declare a person bankrupt on petition from the individual, one or more of their creditors, or the supervisor of an individual voluntary arrangement. The order indicates that the person is unable to pay their debts and, subject to certain exceptions, deprives them of their property, which can then be sold in order to pay their creditors.
We take the date of the bankruptcy order as the relevant date.
This is the bankruptcy process of an individual, or partnership (firm) in Scotland.
If the debtor presents the petition for sequestration, then we treat the date on which sequestration is awarded as the relevant date.
If the petition for sequestration is presented by a:
the court issues a citation, or warrant, to order the debtor to appear before the court within 14 days to state their case as to why sequestration should not be awarded.
If the debtor fails to appear, sequestration is awarded.
In such cases, we take the date of the original 'warrant to cite' as the relevant date.
A creditors' voluntary liquidation usually relates to an insolvent company and is commenced by a resolution of the shareholders.
A creditors' meeting is called so that the creditors of the company may, if they wish, appoint another insolvency practitioner in place of the shareholders' appointee.
We take the date of the extraordinary resolution as the relevant date.
The directors of a company, or the majority of its directors, make a Declaration of Solvency. In the declaration, the directors state their opinion that the company will be able to settle its debts in full plus interest within a period not exceeding 12 months of its being placed in liquidation. The declaration must be made within the 5 weeks immediately preceding the date of the passing of the resolution for winding up.
Liquidation takes place when the resolution is passed.
We take the date of the resolution as the relevant date.
The court orders a compulsory winding up as the result of the presentation of a petition by:
We take the date of the winding up order as the relevant date.
The court orders a compulsory winding up as a result of the presentation of a petition by:
We take the date of the winding up order as the relevant date.
The court may appoint a provisional liquidator after the presentation of a petition for a winding up in order to protect the assets of a company before a winding up order is made.
Where a provisional liquidator has been appointed, we do not treat the case as an insolvency until a winding up order is made and a 'permanent' liquidator appointed.
We take the date of the appointment of the provisional liquidator as the relevant date and issue the insolvency claim to the permanent liquidator.
The court may appoint an administrator following an application by either the company, its directors or one or more of its creditors. In addition, an administrator may be appointed out of court by the:
The administrator must perform his functions:
We take the date of the administration order as the relevant date.
The court appoints an administrator following an application by the members of the partnership or by a creditor, which is intended to allow:
We take the date of the partnership administration order as the relevant date.
The court:
The scheme is only available to individuals.
We take the date of the administration order as the relevant date.
An order made for the administration of a deceased person's estate.
We take the date of the administration order as the relevant date.
This is a method by which an individual can arrange terms with creditors.
We take the date of execution of the deed as the relevant date.
A term normally used to describe a compromise or arrangement between a company and its creditors or members or any class of them, which may involve a scheme for the reconstruction of the company.
We take the date of the creditors' meeting confirmed by the court order as the relevant date.
A debtor grants a deed in favour of the trustee that transfers their assets to the trustee for the benefit of creditors.
We take the date the deed is signed as the relevant date.
A voluntary arrangement provides an alternative to bankruptcy or liquidation without the attached restrictions.
Step |
Action |
|---|---|
1 |
The debtor makes proposals through a licensed insolvency practitioner, which are presented to a meeting of creditors. Creditors must be given 14 clear days notice of such a meeting. The proposals will usually entail delayed and/or reduced payment of debts, and should be advantageous to both the debtor and the creditors. |
2 |
A supervisor will be appointed to monitor the scheme for its duration. The trader continues to be responsible for the business activities. |
Company and partnership voluntary arrangements are similar to the above. A moratorium may be sought preventing certain recovery actions in order to grant a breathing space for the business.
We take the date of the creditors' meeting when the voluntary arrangement was approved as the relevant date.
The control of cases in any of the following categories remains with the local VAT office. The Helpline should be your first point of contact if you have a query.
A secured creditor can appoint a receiver under the Agricultural Credits Act 1928 over the assets of a farm estate.
A receiver, or receiver and manager, is appointed by a secured creditor who holds a fixed charge over the specific assets of a business. The assets will be used for the benefit of the secured creditor.
A lender, such as a bank, can appoint a receiver over a mortgaged property under the Law of Property Act 1925 to recover money advanced.
The receiver will usually try to arrange for the property to be sold or will be responsible for collecting rents for the mortgagee. The business may continue to trade independently of the receiver's appointment.
The court is able to appoint a receiver to collect property over which he is appointed. No property is invested in such a receiver, but his appointment acts as an injunction restraining other parties from realising assets, which the receiver has been appointed to receive.
Complete a Form VAT 769 within 21 days of your appointment if you are appointed as:
Form VAT 769 should also be completed on the approval of a voluntary arrangement (see Section 1.5).
You may obtain the form from the Helpline (0845 010 9000). The information on the form allows us to produce our claim in the insolvency quickly and issue split VAT returns for the pre and post appointment accounting.
You should not use Form VAT 769 to notify us of:
Any of the above should be notified to the appropriate Debt Technical Office (DTO) for the area of the principal place of business of the insolvent entity. You may obtain details of the appropriate DTO by ringing the Helpline.
Responsibility for ensuring that all the details supplied on the VAT 769 are accurate, and that they are proper to the correct VAT registered trader, lies with the office holder appointed to take charge of the insolvent business.
There are notes for guidance on the reverse of the form.
We will be unable to process your notification unless you provide the following essential information in boxes 1 to 6 of the form:
If you are an office holder appointed after an official receiver, we expect you to notify us of your appointment within 21 days and complete the essential information in boxes 1-6 of the VAT 769.
Please give the name and phone number of a person to contact about the insolvency in the space provided, and sign and date the form.
You should also try to supply the following information in boxes 7-12:
However, if any of the above information is not available within the time limit for notification, please complete as much of the form as you can and notify us of the missing details at a later date.
If you are appointed liquidator after the appointment of an administrative receiver, please do not complete a Form VAT 769 as the administrative receiver should already have completed one.
We will, however, need to be informed of who controls the company's assets and has responsibility for rendering VAT returns.
Please provide us with this information, ensuring that you include:
And send it to:
HMRC
National Insolvency Unit
3rd Floor N/W
Queens Dock
Liverpool
L74 4AA
But remember - do not send a completed Form VAT 769 in this circumstance.
If you are appointed liquidator or trustee after an official receiver, please notify us of your appointment using the Form VAT 769. Make sure that you fill in box 3 and box 8 to provide the relevant date for the claim and the date of your appointment as, in this instance, they will usually be different.
Before you fill in the VAT 769, please read the guidance notes printed on the reverse of the form.
If you need further advice or help, contact either:
Once notified that a VAT registered business has become insolvent, we will calculate our claim based on the amount outstanding at the date on which the business became insolvent. You can obtain a more detailed breakdown of the claim from the issuing office.
The relevant date is the date which establishes our claim in the insolvency. The claim will include VAT up to the day before the relevant date.
Where the business continues to trade, the office holder will have responsibility for the VAT affairs of the business from the relevant date onwards. Exceptions to this are:
An amended claim will be issued if there are any adjustments made to the insolvent trader's pre-appointment VAT account which affect our original claim.
The amended claim liability will supersede that of the original claim notification.
If a VAT return has not been submitted for any VAT accounting periods falling prior to the relevant date, the tax liability for the periods may be assessed by means of a computer calculated assessment.
This type of assessment may be withdrawn once an acceptable VAT return has been submitted. Duplicate VAT returns may be requested from the National Insolvency Unit or from the Helpline HMRC reserves the right to verify the accuracy of any returns received.
Assessments relate to individual prescribed accounting periods. They are normally issued as the result of:
Each assessment line corrects the liability previously declared or assessed for the relevant accounting period.
Error correction notifications (formerly known as Voluntary Disclosures) by the registered trader or by the insolvency practitioner of amounts which have been under or over declared follow the same pattern.
Subject to time limits we have the right to assess the tax liability for any period where a return has not been submitted or if there is evidence that tax is due.
Part of our claim may consist of:
This is a penalty calculated as a percentage of the VAT due for the tax period covered by the return which remains unpaid by the due date. Surcharge can increase on every subsequent default up to a maximum of 15%.
You can find further information on default surcharge in Notice 700/50 Default Surcharge.
This may be charged on assessments or voluntary disclosures for VAT underdeclarations or overclaims. The interest will be calculated as a percentage of the underdeclaration or overclaim. It is charged from the day after the due date of the return which understates the VAT due to the date the assessment or voluntary disclosure is paid. If VAT is overpaid by us following a repayment claim interest is charged from 7 days after the date we authorised your repayment until the date the assessment to recover the overpayment is paid.
You can find further information on default interest for VAT in Notice 700/43 Default Interest.
Interest is also chargeable on assessments and voluntary disclosures for Air Passenger Duty, Insurance Premium Tax, Landfill Tax, Climate Change Levy and Aggregates Levy.
Civil penalties can be raised for a variety of reasons including:
Criminal penalties can also be raised if a criminal offence is committed. These penalties will be raised by the courts and will not be included in our insolvency claim.
Penalty interest can also be charged for late payment of Landfill Tax, Climate Change Levy and Aggregates Levy returns. It is also chargeable on tax or levy assessments, penalties, interest and penalty interest in relation to Landfill Tax, Climate Change Levy and Aggregates Levy.
In bankruptcies and compulsory liquidations the office holder can request a proof of debt from the National Insolvency Unit. You can find their address in paragraph 1.4.
Please send all completed returns, whether they are for pre or post insolvency periods, to HMRC, VAT Controller, VAT Central Unit, BX5 5AT.
You must not:
The insolvent business has responsibility for submitting pre-insolvency returns. However, the office holder may submit a return for any pre-relevant period for which the trader has not rendered a return.
Please leave the return unsigned, but add the legend, 'completed from the books and records of the company/trader'.
The final pre-insolvency return covering the period up to the relevant date will be issued automatically to the office holder. This return will not be subject to default surcharge.
Where the relevant date falls within a prescribed VAT accounting period for which no tax liability has been declared, VAT returns will be issued covering the immediate pre and post appointment accounting periods.
The VAT return issued for the… |
will run from… |
to… |
|---|---|---|
…outstanding pre-appointment period |
…the beginning of the prescribed accounting period |
…the day immediately prior to the date of appointment. |
…first post-appointment VAT accounting period |
…the date of appointment |
…the end of the next prescribed accounting period. |
Returns will be issued automatically to the office holder on a monthly/quarterly basis as appropriate.
The office holder has legal responsibility for completing and submitting post-insolvency returns and accounting for any tax due, with the following exceptions:
VAT default surcharge, VAT civil penalties and VAT default interest are not normally applied to post-insolvency VAT returns, except in the case of:
Inaccuracy penalties due under Schedule 24 Finance Act 2007 are applied to both pre and post insolvency VAT returns and relevant documents in all cases. Factsheet CC/FS7 provides details of the penalty for the inaccuracies regime and is available via the HMRC website.
Returns submitted showing a repayment due to the business will be repaid in the name of the insolvent business, c/o the office holder.
We should make the repayment within 30 days of receipt of the return, subject to verification of the declaration. Repayments will be delayed if:
Repayments for businesses:
will be sent to the address of the registered business unless the trader has given written permission for the payment to be sent to the office holder.
Repayment supplement is a form of compensation paid in certain circumstances when we do not authorise payment of a legitimate claim within 30 net days of the receipt of the VAT return.
Normally, the 30 day repayment supplement clock will start on the day that a return is received. But, if your return is received before the end of the accounting period, the clock will not start until the end of the period. This is because you are not entitled to any input tax claimed on the return until the end of an accounting period.
You can find further information about repayment supplement in Notice 700/58 Treatment of VAT repayment returns and VAT repayment supplement.
We have the right to check the accuracy of all returns submitted and to require that the books and records of the business be made available for inspection. In certain circumstances, where it can be shown that an office holder has consistently not complied with regulations, a report may be made to the appropriate licensing authority.
Deregistration is the process by which a VAT registered business is removed from the VAT register and the VAT registration number cancelled.
A registered person who satisfies Customs that they have ceased to make (and/ or ceased to intend to make) taxable supplies is entitled to deregister from VAT from the date they ceased to make (and/ or intend to make) taxable supplies or from such later date that might be agreed with Customs.
Further information about deregistration can be found in Notice 700/11 Cancelling your registration.
The deregistration process is dependent on the type of insolvency. The following procedures relate to cases of:
Step |
Action |
|---|---|
1 |
A deregistration questionnaire (Form VAT 167) is issued to establish the level of stocks and assets on hand. |
2 |
Five weeks after the issue of the initial deregistration questionnaire, a warning letter (Form VAT 168) will be issued, telling you that if you do not respond within 7 days, deregistration will automatically take place on the eighth day. * See below. |
3 |
Once deregistration occurs, a final return (Form VAT 193) will be issued covering the period from the first day after the end of the last accounting period up to the day before the date of deregistration. Please complete this return, even if it is for a 'Nil' amount, and submit it by the due date. |
If a bankrupt intends to continue to trade post bankruptcy, you should notify us without delay so that the VAT registration number may be kept open. In these circumstances, control of the continuing business will revert to the local VAT office.
If, at any time during the above process you advise us that deregistration is not appropriate, the process will be suspended until we can agree deregistration with you.
The initial deregistration questionnaire (Form VAT 167) will be issued. However, deregistration will not be actioned until you confirm that it is appropriate.
Once deregistration has been agreed, a final VAT return (Form VAT 193) will be issued to you for completion. This return will cover the period from the first day after the end of the last accounting period up to the day before the date of deregistration. Please complete this return, even if it is for a 'Nil' amount, and submit it by the due date.
The normal rules for deregistration and for the calculation and submission of VAT returns apply in:
You should follow the procedures in this section if tax is to be accounted for or reclaimed after deregistration.
After the deregistration date, output tax should be accounted for on Form VAT 833 (Statement of VAT on goods sold in satisfaction of a debt). You can get this form from the National Insolvency Unit, Liverpool (see paragraph 1.4) or from our website .hmrc.gov.uk. It must be returned with full payment of any tax due.
Please see paragraph 17.3 for details of the method Law of Property Act receivers should use to account for output tax.
You can also get Form VAT 833 from the Helpline for:
In all cases you should submit the form to:
HMRC
VAT 833 team
CAT 1 E1-03
St. Mungo's Road
Cumbernauld
G70 5WY
Post deregistration input tax may be claimed on Form VAT 426 (Insolvent Traders: Claim for Input Tax after Deregistration).
This form is to be used only by office holders (referred to in Section 7.4)
The form is available for use by:
Form VAT 426 may not be used by solvent deregistered traders, office holders in business rescue procedures and other incapacitated traders. These categories include:
You will find the basic rules about input tax in Notice 700/15 The Ins and Outs of VAT and Notice 700 The VAT Guide.
You can claim input tax… |
You cannot claim input tax… |
|---|---|
on services supplied after deregistration but relating to business carried on before deregistration. |
relating to pre-insolvency tax periods. |
on goods and services supplied and invoiced before deregistration which has not already been claimed on a VAT return. |
on charges made by, for example, solicitors, estate agents and stockbrokers relating to exempt supplies. |
on the services of agents (for example, solicitors or estate agents). |
on pro forma invoices which cannot be claimed as input tax correctly - see Notice 700 The VAT Guide. |
on realisation fees. |
relating to a petitioning creditor's costs. |
on bad debt relief (see Section 10). |
The following general rules also apply:
You should send your completed form VAT 426 claims to:
HMRC
VAT 426 Claims Section
National Insolvency Unit
3rd Floor N/W
Queens Dock
Liverpool
L74 4AA
Please provide supporting invoices covering at least 50% of the claim where the total amount claimed is £10,000 or over. Also, please provide BACS details where the claim is £20,000 or over. You can expect to receive a payable order within 30 working days from the date your completed claim is received by National Insolvency Unit, subject to the verification of your claim.
We will select some claims for verification. This may be carried out by the local VAT office that will make arrangements to visit you within 30 working days from the date the National Insolvency Unit receive your claim. Most verification visits will be made after we have authorised your repayment claim. However, in some instances we may decide to withhold repayment until we have completed our enquiries.
If we disallow any part of your claim, you may be held liable to bear the cost of any VAT we have disallowed.
This is to be used in the following circumstances:
The completed VAT 427 should be sent to the following address:
VAT 427 Team
CAT 2 E1-03
St. Mungo's Road
Cumbernauld
G70 5WY
If the office holder declares a dividend from an insolvent estate, cheques should be made payable to HM Revenue & Customs and sent to:
HMRC
CAT 2
St. Mungo's Road
Cumbernauld
G70 5WY
Please include the VAT registration number of the business concerned on the back of the cheque.
When part of a claim is paid as a dividend, the claim figure on which any subsequent dividend payments are calculated is not reduced. The claim that is calculated at the relevant date stands, and all dividend payments must be based on that figure.
Dividends for businesses subject to… |
should be sent to… |
|---|---|
…any form of administration |
…National Insolvency Unit. See para 1.4 for the full address. |
… Scottish trust deeds and deeds or schemes of arrangement |
…HMRC |
… voluntary arrangements |
…the Voluntary Arrangement Service. See para 1.5 for the full address. |
When trading continues after bankruptcy, the bankrupt retains responsibility for the submission and payment of VAT returns covering post-bankruptcy periods. It is therefore important that the trustee informs the National Insolvency Unit if the bankrupt continues to trade beyond the date of bankruptcy.
We will establish the pre-bankruptcy position to enable us to lodge a claim, make a repayment to the office holder, or operate Crown set-off (see Section 13) as appropriate.
If you have tax to account for in respect of your period of office, you must not include this tax on the business' post-bankruptcy returns. We will issue forms to you on request to allow you to account for the tax. Completed forms should be returned to the National Insolvency Unit.
If you have made supplies of goods or services to a customer and you have not been paid for them, you may be able to claim relief from VAT on the debts you have incurred providing you can meet all the statutory requirements of the bad debt relief scheme. You will find further information about the scheme in Notice 700/18 Relief from VAT on bad debts.
Bad debt relief claims made for insolvent traders can be made on VAT returns in cases where the VAT registration remains open. Where the VAT registration has been cancelled, a Form VAT 426 should be used. A letter scheduling the bad debt relief claim details, together with copies of the relevant invoices, must be submitted to the National Insolvency Unit for approval.
Extra-statutory concession relieving office holders from input tax clawback provisions
An extra-statutory concession has applied from 26 November 1996 which relieves office holders/insolvent traders from the need to repay us input tax where:
The cash accounting scheme allows VAT registered businesses with a turnover limit up to £1,350,000, to account for VAT on the basis of payments received and made rather than on tax invoices issued and received.
Details of how the scheme operates can be found in Notice 731 Cash Accounting.
The office holder is responsible for the cash accounting scheme adjustment described in paragraph 11.3. The office holder responsible for the business may use the scheme in the post relevant period if the insolvent business was eligible to use the scheme pre-insolvency and continues to be eligible to do so. This may be appropriate in cases where trading has continued after the relevant date.
The cash accounting regulations were amended with effect from 3 July 1997.
For insolvencies where the relevant date falls… |
then… |
|---|---|
prior to 3 July 1997 |
the office holder will be required to account for tax on all supplies made or received in the 6 months immediately prior to the relevant date which have not already been accounted for. |
on or after 3 July 1997 |
tax must be accounted for, within 2 months of the relevant date, on all supplies made and received up to the date of the insolvency which have not previously been accounted for. |
For businesses in:
Where the relevant date falls… |
then… |
|---|---|
on or after 1 January 1998 |
tax must be accounted for on all supplies made and received up to the date of the insolvency |
prior to 1 January 1998 |
no adjustment at the relevant date is required. |
This tax should be entered on to the VAT return for the period immediately preceding the relevant date, and is treated as a liability arising before the insolvency.
General guidance on credit notes can be found in Notice 700 The VAT Guide.
Where a credit note evidencing a decrease in consideration is received or issued by an office holder after the relevant date, adjustments of VAT resulting from such credit notes will relate to the VAT accounting period in which the original supply was made or received.
If you issue a credit note evidencing a decrease in consideration for supplies made in a pre-insolvency VAT period, the effect is to reduce the output tax due in that period and thus to reduce our claim in the insolvency.
If you receive such a credit note which relates to supplies made in a pre-insolvency VAT period, the effect is to reduce the input tax which can be claimed in that period and so to increase our claim in the insolvency.
For:
any adjustments of VAT are to be related back to the period in which the original supply took place.
Since the adjustment of VAT arising from the credit note applies in the VAT accounting period in which the original supply took place, the VAT return for the period in question will often already have been submitted once the credit note comes to light. In that event, the credit note adjustment should be declared either by letter or by means of a Voluntary Disclosure to the relevant office. Please provide details of the VAT element and the date of the original supply. If, however, you have not yet rendered a VAT return for the period concerned and you are intending to do so, the return must include the credit note adjustment.
In the case of a company voluntary arrangement the adjustment should be made on the normal basis, that is, in the period the adjustment takes effect in the business accounts of either the taxable person issuing the credit note or the customer receiving one.
For Scottish trust deeds credit notes should be treated on the normal basis outlined in paragraph 12.3.1.
Credit notes for all other types of insolvency should be accounted for on the normal basis outlined in paragraph 12.3.1.
We can offer credits arising from insolvent traders' VAT repayment claims accruing before the relevant date to other Government Departments. This will allow other Government Departments to reduce or satisfy their claims against the same insolvent trader.
We only operate the crown set off procedure for credits on the trader's account of more than £500. These may be the result of VAT repayment claims, credits for Insurance Premium Tax, Landfill Tax or Air Passenger Duty. Any credits, which fall below the £500 limit, will be repaid automatically to the insolvent estate care of the office holder, or to the trader if the business is in a voluntary arrangement, deed or scheme of arrangement or county court administration order. Crown set off will take place after all pre-relevant returns have been received and/or assessments raised and set off.
Crown set off will not apply if the credit is secured by a valid fixed charge on book or other debts.
Distraint (Attachment in Scotland) is a commonly used method of recovery by taking possession of a debtor's goods and selling them, usually at public auction, after which the proceeds are set against the debt and costs. Distraint does not require the sanction of a court order.
Once a bankruptcy order/compulsory winding up order has been made, then any incomplete distraint action (that is, the goods distrained upon have not been sold), may be completed by us with the authority of the trustee in bankruptcy/liquidator, or the trustee/liquidator may insist on the goods being released to him to sell subject to an undertaking provided by HMRC.
If distraint has been completed within the 3 months immediately preceding the date of a bankruptcy/winding up order, the proceeds of the distress may be surrendered to the trustee in bankruptcy/liquidator if the trustee/liquidator is unable to pay the preferential creditors in full from other realisations. The trustee/liquidator must satisfy HMRC that such a shortfall regarding preferential creditors exists.
Where distraint is completed by sale more than 3 months before the making of the bankruptcy/winding up order HMRC is entitled to retain the sale proceeds.
In Scotland, attachment will not be taken against a sequestrated trader for the duration of the sequestration.
If distraint has been levied/goods attached before the appointment of a liquidator, administrative receiver or administrator, then the distraint/attachment remains valid and will be maintained and may be completed (see paragraph 14.3.3).
Distraint action will normally be suspended once an interim order has been made, a moratorium granted or proposals for a voluntary arrangement have been received and a creditors meeting arranged unless there are exceptional circumstances which justify not suspending, for example evidence of fraud or lack of probity.
Where the proposals are rejected at the creditors' meeting we will proceed to complete the distraint by sale. If the proposals are approved we will normally withdraw the distraint, though in exceptional circumstances we may maintain it and include it as security in modified proposals.,
Once an administrator has been appointed, distraint may not be instituted or continued against the company or the property of the company except either with the:
(a) consent of the administrator; or
(b) leave of the court.
Although, in view of the special rights distraint gives us over the seized goods, HMRC will generally try to reach a financial settlement with the administrator without the need to seek court directions.
In many cases we will agree to the office holder selling the distrained goods if it is likely to be to our benefit and/or to the creditors in general. This is subject to the office holder providing us with a written undertaking to remit the proceeds of the sale of the distrained goods directly to us.
We reserve the right to remove and sell distrained goods at any time.
Any money received by us for the sale of distrained goods will be set against costs and then against the earliest pre-insolvency liability, with our claim amended accordingly.
Where a floating charge crystallises on the appointment of an administrative receiver or some other event specified in the debenture, the distress will still be maintained and completed if we have already levied on goods which are subject to the floating charge. We may choose to let the administrative receiver sell the goods, subject to an undertaking, and pass the proceeds to us (see 14.3.3 above).
If a business is registered for VAT and incurs input tax relating to exempt supplies, that business is partly exempt. This means that it may not be able to claim all the input tax it incurs and that it will normally have to use a partial exemption method to work out how much input tax can be claimed.
You can find further information about partial exemption and methods of calculation in Notice 706 Partial exemption.
Partial exemption requirements apply to all VAT traders including those which are insolvent or in receivership or administration. As office holder you must comply with these requirements in respect of any returns you complete for pre or post relevant VAT periods.
An insolvent business may seek approval from its local VAT office for a change of method to calculate its entitlement to input tax recovery, given the change in circumstances. HMRC will apply its normal policy, as set out in para 6.11 of Notice 706, to when any new method can apply from with the exception that the method cannot be applied to any pre-insolvency returns.
Where a business is already partly exempt it may seek approval from its local VAT office to end its current tax year at the relevant date and to make its annual adjustment in the VAT period ending with the relevant date. If we do not allow approval for a change, the annual adjustment is to be made in accordance with the normal rules set out in Notice 706 Partial exemption.
If the insolvent business had assets covered by the CGS (see Notice 706/2) then those assets pass to the office holder on insolvency. If the use of the assets changes whilst under the office holder's control then adjustments may arise, which must be declared on returns due from the office holder.
The office holder will need to establish the following information:
Any adjustments are likely to be modest as they will only address the time of use by the office holder and the difference between their use and that originally made by the business prior to insolvency.
If the office holder brings the company out of insolvency or sells its assets as a TOGC then any CGS items will pass on to the new owners at that point.
If the original use was taxable and the sale will be exempt then there may be substantial adjustments due. As the sale will be made by and under the direction of the office holder adjustments must be declared by them on returns that they submit. If the asset is a building then it may be possible to prevent the sale from being exempt by opting to tax (see Notice 742A), although this may restrict what buyers may be interested.
If the original use of the assets was partly exempt, and if the sale is to be taxable, then adjustments in the office holder's favour may arise.
If the business is deregistered without a sale of the asset taking place then an adjustment may arise at that time.
Where a business remains fully taxable or continues to be treated as fully taxable, the input tax on the office holder's fees, and all other overheads, will be recoverable. Where the business carries on trading and becomes partly exempt, it will have to apply a partial exemption method in the normal way. Recovery of input tax, including that on the office holder's fees, could be subject to restriction in accordance with the partial exemption method used.
Where the business remains partly exempt, recovery of input tax, including that on the office holder's fees, could be subject to restriction in accordance with the partial exemption method in place in the normal way. You should request a change of method from your local VAT office if, due to changing circumstances, the method in place no longer produces a fair and reasonable attribution of input tax to taxable supplies.
Where the business has ceased to trade, the principal activity will be the sale of assets. If the assets which are sold are exempt, the business may become partly exempt. Any input tax relating to the sale of the exempt assets would then need to be restricted according to a method. However, the office holder's fees should be treated as an overhead to the business prior to insolvency and, since that was fully taxable, they are fully recoverable subject to the separation of any third party costs.
Where the business has ceased to trade, the principal activity will be the sale of assets. Recovery of input tax is subject to restriction in accordance with the partial exemption method which is in place in the normal way. However, the office holder's fees should be treated as an overhead of the business prior to insolvency and, since that was partly exempt, they will be subject to restriction. The business should continue to use the method in place in the normal way. A change of method should be requested from the local VAT office if, in the light of changing circumstances, the method in place no longer produces a fair and reasonable attribution of input tax to taxable supplies.
VAT is only recoverable on services which, although supplied after the registration was cancelled, relate to former taxable supplies made by the business.
Where a partnership becomes insolvent, we may pursue any of the partners for any liability due.
We will lodge one claim with the insolvency practitioner in the name of the partnership. This claim should stand in the joint estate and separate estates of all the insolvent partners. We should therefore be included in any dividend declared in any of the insolvent estates.
Responsibility for rendering and paying returns remains with the solvent partner(s).
We may lodge a claim with the office holder of the estate of the insolvent partner for any debts accrued up to the date of insolvency.
If you have tax to account for on the administration of the insolvent estate you must not account for it on the solvent partner's return. We will issue forms to you on request to allow you to account for the tax direct to us.
The office holder will be treated as the taxable person with effect from the date of the winding up. He or she will be responsible for rendering and paying any tax due on returns for the period after the date of winding up.
A claim will be lodged with the office holder in the name of the insolvent partnership for any liabilities due to us up to the date of winding up.
We will lodge individual claims in the individual estates of the partners calculated from their respective relevant dates.
Where a receiver is appointed under the Law of Property Act, the receiver is unlikely to be allowed to register separately for VAT. This is because the receiver is appointed under a legal charge and is deemed to be the agent of the company. The trader/directors retain responsibility for their own VAT registration and all taxable supplies made by either the trader or the receiver must be accounted for on the VAT return for the trader's registration.
You should ask the VAT office which controlled the insolvent business to confirm whether an option to tax has been taken out on the land or building. If the insolvent business has opted to tax, any supplies of the land or building will normally be standard-rated. You can find further information in Notice 742A Opting to tax land and buildings for more information.
If a Law of Property Act (LPA) receiver makes continuing supplies such as renting or leasing, then any VAT due should be accounted for through the trader's VAT account and the trader's VAT registration number should be used on any invoices issued. If the VAT registered person does not agree to this, the LPA receiver may account for output tax separately on a Form VAT 833.
If assets are sold, then the VAT due must be accounted for and paid to us using Form VAT 833. The trader's VAT registration number should be used on sales invoices and quoted on the VAT 833. Forms VAT 833 are available on request from the Helpline. LPA receivers cannot make a separate claim for the input tax which should properly be claimed via the trader's VAT return.
There may be a transfer of a business as a going concern if the assets of the business are transferred to a different legal entity where they continue to be used in the same type of business as that of the transferor.
An office holder may treat the transfer of the assets of a business as not being a supply where the business is transferred as a going concern and the transfer can meet the criteria set out in Leaflet 700/9 Transfer of a business as a going concern.
The liquidator may destroy the books, papers and records, including the VAT records, of the insolvent company one year after the date of dissolution of the company.
A concession has been granted to official receivers to allow them, on request and with our approval, to destroy the books and records of a company after 6 months.
Normal rules for retention of records apply to other insolvencies.
VAT 100
HMRC
VAT Controller
VAT Central Unit
BX5 5AT
VAT 193
HMRC
VAT Controller
VAT Central Unit
BX5 5AT
VAT 426
HMRC
The National Insolvency Unit,
3rd Floor N/W
Queens Dock
Liverpool
L74 4AA
VAT 427
HMRC Accounts Office
CAT 2 E1-03
St. Mungo's Road
Cumbernauld
Glasgow
G70 5TR
VAT 769. Voluntary arrangements only
HMRC
Voluntary Arrangement Service
Durrington Bridge House
Barrington Road
Worthing
West Sussex
BN12 4SE
VAT 769 forms for any other insolvency type should be sent to
HMRC
The National Insolvency Unit
3rd Floor N/E
Queens Dock
Liverpool
L74 4AA.
Your Charter explains what you can expect from us and what we can expect from you. For more information go to hmrc.gov.uk
If you have any comments or suggestions to make about this notice, please write to:
HM Revenue and Customs
National Insolvency Unit
3rd Floor N/W
Queens Dock
Liverpool
L74 4AA
Please note this address is not for general enquiries.
For your general enquiries please phone our Helpline on 0845 010 9000.
If you are unhappy with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager.
For more information about our complaints procedures, go to hmrc.gov.uk and under ‘quick links’ select ‘Complaints’
HM Revenue & Customs is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.
We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:
We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to hmrc.gov.uk and look for Data Protection Act within the Search facility.
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