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July 2007
RESPONSIBILITIES OF THE OFFICIAL RECEIVER, LIQUIDATOR OR TRUSTEE IN RESPECT OF VAT REGISTERED INSOLVENTS
78.32 The Insolvency Service and HMRC
In November 2002 The Insolvency Service entered into a partnership agreement with HM Customs and Excise. Following the merger of HM Customs and Excise and the Commissioners of Inland Revenue on 18 April 2005 this agreement no longer stands. The Insolvency Service is currently liaising with HMRC with regards to the formation of a new partnership agreement which may result in additional changes to this chapter (see paragraph 78.54).
The official receiver when acting as a liquidator or a trustee is not the holder of a public office and VAT us chargeable on taxable fees or remuneration as detailed in Chapter 36 Part 1.
78.34 Initial enquiries where HMRC is the petitioning creditor
When HMRC is the petitioning creditor in a bankruptcy, a standard package of information will be provided to the Petitions and Transfers Team, OR London C, London Region as a matter of routine within 48 hours of the bankruptcy order. The information will be supplied to official receivers by the Petitions and Transfers Team as a consequence of which no contact should be made with HMRC by way of initial enquiries.
The initial package of information will be supplied by HMRC, Enforcement and Insolvency Office, Durrington Bridge Road House, Barrington Road, Worthing, West Sussex, BN12 4SE.
78.35 Initial enquiries where HMRC is not the petitioning creditor
HM Customs may be able to assist the official receiver in the provision of initial enquiry information (if known) on new cases. This information should only be requested if the official receiver is unable to obtain the information via other routes.
78.36 Notification of Insolvency (form VAT 769)
In every case where the insolvent is registered for VAT, the official receiver should complete HMRC form VAT 769 (notification of insolvency) as soon as possible and indicate on the form whether deregistration is appropriate. This form is the initial document informing HMRC of the insolvency. Where possible the VAT number should be provided. If this is not available the form should still be sent as HMRC will attempt to locate the case through searches.
HMRC would prefer the VAT 769 to be sent electronically as there is less chance of the forms going astray. The completed form should be sent to insolvencyhelpdesk@hmrc.gsi.gov.uk. Forms sent by post should be sent to HMRC, VAT Operations Insolvency, 3rd Floor NW, Queens Dock, Liverpool, L74, 4AA.
Where HMRC are listed as a creditor in an insolvency proceedings all statutory notices and reports should be sent to HMRC Insolvency Claims Handling Unit, Room BP 3202, Warwick House, Benton Park View, Longbenton, Newcastle Upon Tyne, NE98 1ZZ
Statutory notices and reports include meetings notices, notice of no meeting and notice of the official receiver intention to apply for release as liquidator of a company or trustee of the bankrupt's estate. This includes cases where the debts are owed formerly to the Commissioners of Inland Revenue or HM Customs and Excise. The official receiver should endeavour to ensure that the VAT number is included in any communication.
Where, however, there is a need to obtain a proof of debt from HMRC (perhaps, in respect of dealing with a distribution) the address to which the request should be directed would depend on the nature of the debt, as follows:
For claims in respect of PAYE, self-assessment, corporation tax and other taxes formerly collected by the Inland Revenue:
Insolvency Claims Handling Unit (ICHU)
HM Revenue and Customs
Room BP 2032
Longbenton
Newcastle upon Tyne
NE98 1ZZ
For claims in respect of VAT, excise duties, environmental taxes and other taxes formerly collected by HM Revenue and Customs:
National Insolvency Unit (NIU)
HM Revenue and Customs
Debt Management and Banking
3rd Floor NW
Liverpool
L74 4AA
78.38 Other information required from HMRC
Where information is required from HMRC other than for details of the insolvency claim the enquiry should be directed to the local tax office, that is the one that handles, or has handled the insolvent's tax affairs. It is the address of this tax office which is most likely to have been included by the insolvent in the preliminary information questionnaire.
It is time consuming for HMRC to locate a business where the VAT number is not available on communication received and the VAT number should be included on all correspondence where possible. In exceptional circumstances HMRC may be contacted without quoting the VAT number as HMRC can, when resources permit carry out extensive searches to locate the case in question, e-mail enquiries should be sent to insolvencyhelpdesk@hmrc.gsi.gov.uk. or alternatively HMRC can be contacted on 0151 703 8450
78.40 Verifying the insolvent's VAT number
The official receiver can verify that the insolvent has disclosed a valid VAT number via the website of the European Commission ec.europa.eu
This website will verify the validity of a UK or other European Union member state VAT number.
78.41 Information on investigation cases
Requests for information on investigations cases should be e-mailed to directorsdisqualificationunitdu@hmrc.gsi.gov.uk
78.42 Submission of VAT returns for last business period
If a return (see paragraph 78.12) for an insolvent has not been submitted for the last business period, an assessment of the amount owed will be raised by HMRC.
The insolvent business is responsible for submitting any outstanding pre-insolvency returns. The official receiver as liquidator/trustee may submit a return for any relevant period for which the insolvent has not submitted a return. The official receiver should not sign the return, but should mark it "completed from the books and records of the company/trader."
The final pre-insolvency return covering the period up to the date of the insolvency order will be issued automatically where required by HMRC to the official receiver following receipt of the VAT769 (see paragraph 78.36). This return will not be subject to a default surcharge (see paragraph 78.21).
78.43 Issue of tax invoices by the official receiver
The official receiver may be requested to issue a tax invoice (see paragraph 78.11) where taxable goods or services have been supplied to the insolvent prior to the insolvency order but no tax invoice has been issued in respect of such goods and services. If the records available to the official receiver clearly confirm the transaction in question the official receiver should comply with the request. The Insolvency Service has a standard format for all invoices and a copy of the standard invoice form and guidance notes on how to complete the the form can be found in the Finance Handbook.
Where the records of the insolvent are incomplete or inadequate to accurately confirm the transaction the official receiver should advise, in writing, the person requesting the issue of the tax invoice of his/her inability to do so, copying such advice to HMRC.
Deregistration is the process by which a VAT registered business is removed from the VAT register with HMRC and the VAT registration number is cancelled. The VAT legislation contains provision for the deregistration if a business where the level of sales or services and tax payable is below a defined limit, the criteria for which is updated annually. Current limits are detailed in VAT leaflet 700/11 available on www.hmrc.gov.uk
Deregistration may occur when a registered business or person satisfies HMRC that they have ceased to make (and/or ceased to intend to make) taxable supplies or from such later date that might be agreed with Customs.
78.45 Automatic deregistration
The receipt by HMRC of the notification of insolvency form VAT 769 (see paragraph 78.36) triggers the automatic deregistration process and a deregistration questionnaire [note 1] will be issued by HMRC to the official receiver or insolvency practitioner subsequently appointed to establish the level of stock and assets in the liquidation.
If this form is not returned to HMRC within five weeks, a warning letter [note 2] will be issued by HMRC, and if this is not responded to within seven days, deregistration automatically occurs on the eighth day.
Once deregistration has occurred, a final return [note 3] will be issued by HMRC covering the period from the first day after the end of the last accounting period up to the day before the date of deregistration. The official receiver should complete and return this form to HMRC, even if it is a nil return.
If at any time during the above process the official receiver considers that deregistration is not appropriate HMRC should be informed immediately and the process will be suspended.
In the event that deregistration has occurred and it is later ascertained that a liability or repayment does in fact exist then any tax payable or refundable may be dealt with manually by completion of forms VAT 833 (input tax) and VAT 833 (output tax) which may obtained from HMRC on request.
78.46 Where deregistration is not appropriate
Deregistration will not be appropriate where:
a) the appointment of an insolvency practitioner is envisaged; or
b) any VAT liability arising subsequent to the insolvency order exceeds, or is likely to exceed £1,000 presently representing gross proceeds of sale or realisations not exceeding £5,714 (VAT on stocks and assets does not need to be accounted for to HMRC where the total VAT on them would be £1,000 or less); or
c) the business of the insolvent is being continued; or
d) an application for a stay of advertisement or proceedings, annulment, rescission or an appeal against the insolvency order has been made.
In all these circumstances it is essential for the smooth operation of the procedure outlined above that the Official Receiver should return the deregistration questionnaire [note 1], indicating the reason why deregistration is not appropriate.
78.47 Bankrupt continues to trade
If a bankrupt is registered for VAT and intends to continue to trade post bankruptcy, the official receiver should notify HMRC without delay so that the VAT registration number may be kept open. In such circumstances the control of the continuing business will revert to the local VAT office.
When a bankrupt continues to trade post bankruptcy the bankrupt retains responsibility for the submission and payment of VAT returns covering the post-bankruptcy periods. HMRC will seek to establish a pre-bankruptcy position in order to lodge a claim in the bankruptcy proceedings or make a repayment to the trustee, or operate Crown set-off (see paragraph 78.29) as appropriate.
78.48 Continuity of business; realisation of assets
Where, for any reason, the business of the insolvent is continued or assets of any substance remain for realisation, the estate should remain registered for VAT until such times as the business is finally terminated or disposed of or deregistered as being under the minimum level of turnover to require registration (see paragraphs 78.44-46). The official receiver must observe the VAT responsibilities of the insolvent, including the submission of returns and payment of tax and will need to keep a VAT account of his/her trading activities or his/her realisation of assets (see Part 1 paragraph 78.11). Such account supported by tax invoices, should record all input and output tax including VAT on trading payments, expenses or costs of realisation etc. A copy of the VAT account should be maintained in or with the estate record book [note 4] and should be passed to any insolvency practitioner appointed as liquidator/trustee.
78.49 Post-insolvency returns where insolvent is not deregistered.
In insolvency normal VAT liability rules apply to all transactions, whether the business is being operated as a going concern or the assets are being realised.
Post insolvency returns are issued to the official receiver as liquidator/trustee office holder on a monthly/quarterly basis for as long as the insolvent remains registered for VAT. Where the official receiver is liquidator/trustee he/she has a responsibility to complete and submit the returns to HMRC from the date of his/her appointment and to account for any VAT due on the submission of each return. Where the input tax exceeds the output tax (see paragraph 78.9) repayment is due and HMRC will make this to the official receiver as liquidator/trustee, unless there is a Crown debt to be set off (see paragraph 78.29)
Where an insolvency practitioner has been appointed as liquidator/trustee any returns received from HMRC should be forwarded to the insolvency practitioner. Where an insolvency practitioner is appointed as successor to the official receiver or another practitioner he/she is under a duty to notify HMRC of his/her appointment within 21 days..
For guidance on the completion of a VAT return form see Case Help Manual - VAT
78.50 Disposal of private assets in bankruptcy
Any sale of the private assets of a bankrupt whose business is registered for VAT purposes is not in the course of business and VAT is neither chargeable or recoverable in respect of any related expenses.
78.51 Insolvent not registered for VAT
Where the official receiver ascertains that an insolvent has not registered as a taxable person (see paragraph 78.8) although required to do so, HMRC should be advised accordingly. Notification should be sent via e-mail to InsolvencyHelpdesk@hmrc.gsi.gov.uk. HMRC have extensive powers to impose penalties for deliberate non compliance with VAT legislation. The official receiver should admit as a debt in the proceedings only the VAT ascertained to be due at the date of the insolvency order and should exclude any penalty which had not been quantified and imposed at the date of the insolvency order.
If the insolvent was not registered but was required to be registered at the date of the insolvency order, the official receiver need not apply for registration, unless as a result of carrying on the business or the disposal of assets, excluding capital assets formerly used in the business, the taxable turnover is expected to exceed £1,000.
Application for voluntary registration may be made in any case where the official receiver considers this to be beneficial to the insolvent estate. Such a position might apply where the business of the insolvent related to the supply of an 'exempt' service e.g. the business of an ophthalmic or dispensing optician where the official receiver might incur input tax on professional services relating to the continuation, valuation or costs of sale of the business. Any such application will need to be carefully evaluated to ensure that the advantage of recovery of tax will not be outweighed by the obligation to account for tax which might then become payable on the sale of any 'non-exempt' assets of the insolvent estate.
78.52 HMRC and Secretary of State appointments of an insolvency practitioner.
HMRC have informed The Insolvency Service that in some cases where they are petitioning creditor they may be pursuing recovery of assets more actively than usual or that there may be cases in which they have a special involvement. In these instances their interest as a creditor may be frustrated by simply appointing an insolvency practitioner from the rota and that in such instances they would like to have the chance to exercise their voting rights as a creditor in the proceedings.
The most efficient way for HMRC to give notification of their interest in a case where they are petitioning creditor is to ask their solicitors, Clarke Wilmot, to note the cover sheet from them to that effect.
HMRC hold a litigation budget, a fund which can be drawn upon by insolvency office holders who require funding to take legal proceedings to pursue and recover assets for the benefit of creditors. HMRC will consider each application for funding on its merits in the light of the prospects of success and the likelihood of a net benefit. The official receiver will need to provide HMRC with full details of matters to be considered and details of any other creditors interested in supporting the proposed action. An indication of the likelihood of success of any action to be taken and the possible net benefit to creditors should also be provided. The official receiver should address correspondence on this matter to HMRC VAT Operations, Legal Recovery Unit 3rd Floor NW, Queens Dock, Liverpool, L74, 4AA.
78.54 The Insolvency Service contact with HMRC
Regular liaison meetings between the Insolvency Service and HMRC are taking place to discuss problems encountered by the official receiver on a regular basis with the aim of resolving them at the earliest opportunity. The contact within The Insolvency Service with HMRC is Paul.Danneau@insolvency.gsi.gov.uk
[Back to Part 2 - VAT General matters]