Fairpoint VAT refund reinforces IP ruling

Debt advisory firm Fairpoint Group has received £9m from HMRC in respect of VAT wrongly charged on individual voluntary arrangements (IVAs) - reinforcing a previous ruling concerning insolvency practitioners.

The payout follows the Paymex Ltd v Revenue & Customs VAT tribunal case from last year, which ruled providers can claim a refund on previous IVAs. It found that nominees’ and supervisors’ fees in consumer IVAs were exempt supplies.

Claims for wrongly declared output tax will make the IP partially exempt for VAT purposes. This requires the IP to reduce their claims by the input tax directly attributable to the exempt supplies and a percentage of overhead or residual input tax which was previously claimed on the assumption it was attributable to taxable supplies.

In this case a first-tier tribunal found that the service supplied by Blair Endersby constituted a single supply that was made up of a number of elements of which part is negotiation of debts and part is transactions concerning payments, and not debt collection.

In his concluding remarks the judge said: “It is clear to us that all these aspects of the service are ancillary to the core elements of negotiation and payment handling, and that accordingly, viewed overall, the supply is exempt as falling within article 135(1)(d) of the Principal VAT Directive.”

HMRC has stated that IPs are not obliged to make refund claims but where they do, HMRC can reject claims where they are able to show that the claimant would be unjustly enriched by payment of the claim.

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