Insolvency (VAT Notice 700/56)
Find out how to account for VAT and who to contact if you're an insolvency practitioner and you're appointed over insolvent VAT-registered businesses.
1. Overview
This notice is being replaced by the Insolvency practitioner’s handbook. You can find out more about what the handbook covers, who should read it, its legal status and how to contact HMRC in section 1.
2. Types of insolvency
You can find out about the different types of insolvency in section 2 of the Insolvency practitioner’s handbook.
3. Notifications
4. Claims
You can find out how HMRC issue claims to insolvency practitioners, and how VAT penalties and interest apply in section 4 of the Insolvency practitioner’s handbook.
5. Returns
6. Cancel your VAT registration
You can find how to cancel your VAT registration in section 6 in the Insolvency practitioner’s handbook.
7. Post VAT registration cancellation
You can read about post VAT registration cancellations in section 7 of the Insolvency practitioner’s handbook.
8. Dividends
8.1 Declaring a dividend
You can pay by bank transfer.
If you pay by CHAPS (Clearing House Automated Payment System) or Faster Payments, you can submit your payment on the same or next day.
If you pay by Bacs (Bankers Automated Clearing System), allow 3 working days for the payment to reach HMRC.
We recommend you check your bank’s processing times and maximum transaction limits before you pay.
What you need
You need your 13-character payment reference number. This is your 10-digit unique case reference number followed by a 3-letter suffix to show the type of insolvency the dividend refers to, for example, 8801234567CVA.
Account details to use if your bank account is in the UK
Use the following details to make a payment if your account is in the UK:
- sort code: 20-20-48
- account number: 30944793
- account name: HMRC NIC Receipts
Account details to use if your bank account is overseas
Use the following details to make a payment if your account is overseas:
- account number (IBAN) — GB49 BARC 2020 4830 9447 93
- Business Identifier Code (BIC) — BARCGB22
- account name — HMRC NIC Receipts
This table details the dividend types and their unique 3-digit suffixes.
| Dividend type suffix | 3-digit suffix |
|---|---|
| Individual Voluntary Arrangement | IVA |
| Sequestrations | SEQ |
| Trust deeds | TRD |
| Northern Ireland bankruptcy | IBY |
| Members voluntary liquidations | MVL |
| Company liquidation cases | LIQ |
| Individual bankruptcy or partnerships | BKY |
| Company Voluntary Arrangement | CVA |
| Partnership Voluntary Arrangement | PVA |
| Administration | ADM |
| Petition costs | PET |
Our unique case reference numbers start with 623 or 075 or 880 followed by 7 digits.
You can contact us if you are unsure how to use the reference format, or our claim does not have a reference number.
8.2 What happens when part of a claim is paid as a dividend
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 calculated at the relevant date stands, and all dividend payments must be based on that figure.
Where to send dividends
For businesses subject to:
-
any form of administration — send to the Enforcement and Insolvency Service (read section 1.4 of the Insolvency practitioner’s handbook)
-
voluntary arrangements — send to the Voluntary Arrangement Service (read section 1.5 of the Insolvency practitioner’s handbook)
For Scottish trust deeds and deeds or schemes of arrangement, you should send dividends to:
Debt Management — EIS E
HM Revenue and Customs
BX9 1SD
8.3 Notice of intended dividend
If you have not received a claim from us and you intend to pay a dividend, submit your notice of intended dividend by email. You’ll need to use the contact details in section 1.4 of the Insolvency practitioner handbook.
9. Bankrupt continues to trade
9.1 Who’s responsible
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 Enforcement and Insolvency Service (read section 1.4 of the Insolvency practitioner’s handbook) if the bankrupt continues to trade beyond the date of bankruptcy.
We will establish the pre-bankruptcy position to allow us to lodge a claim, make a repayment to the office holder, or operate Crown set-off (read section 13) as appropriate.
9.2 Accounting for tax in your period of office
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’ll issue forms to you on request to allow you to account for the tax.
Completed forms should be returned to the Enforcement and Insolvency Service.
10. Bad debt relief
11. Cash accounting
11.1 What cash accounting is
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.
Read Cash Accounting Scheme (Notice 731) for information about how the scheme operates.
11.2 How insolvency affects 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 when trading has continued after the relevant date.
11.3 Post-insolvency cash accounting adjustment
The cash accounting regulations were amended with effect from 3 July 1997.
For insolvencies:
-
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 has not previously been accounted for
For businesses in:
- administration
- voluntary arrangements
- deeds and schemes of arrangement
- county court administration orders
When the relevant date falls:
- 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 the VAT Return for the period immediately preceding the relevant date, and is treated as a liability arising before the insolvency.
12. Credit notes
You can find general guidance on credit notes in section 18 of the VAT guide (VAT Notice 700).
13. Crown set-off
13.1 What a Crown set-off is
We are entitled to set-off any pre-insolvency credits against pre-insolvency debt owed by the debtor in for other duties administered by us. We can offer any remaining 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.
The credits may arise from VAT repayment claims, credits for Insurance Premium Tax, Landfill Tax or Air Passenger Duty. We’ll undertake such set-off whenever it is cost-effective for us to do so, this will usually mean that set-off enquiries will not be initiated for credits below £250.
The balance of any credit remaining following such set-off 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 either all pre-relevant returns have been received or assessments raised and set-off, or both.
Crown set-off will not apply if the credit is secured by a valid fixed charge on book or other debts.
13.2 Set-off and preferential debts
When we owe a pre-insolvency credit to a debtor and seek to set this off against pre-insolvency debts owed by the debtor, which are both preferential and non-preferential (sometimes called ‘unsecured debts’), this is undertaken differently depending on the UK jurisdiction of the insolvency.
For insolvencies under the law of England, Wales and Northern Ireland, the amount due from us to the debtor must be set-off rateably against the non-preferential debt and the preferential debt, in proportion to the respective amounts of those debts.
In insolvencies under the law of Scotland, set-off operates differently. We will set-off any sums due to the debtor against HMRC non-preferential debt first, then any remainder against our preferential debt.
Find out more about preferential debts.
14. Taking control of goods or distraint
14.1 What taking control of goods or distraint are
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.
Distraint will no longer be used in England and Wales with effect from 6 April 2014 when the relevant legislation will be repealed but will continue to be used in Northern Ireland.
Taking control of goods replaced distraint in England and Wales from 6 April 2014.
Taking control of goods is the process under which a debtor’s goods are seized and sold in settlement of outstanding costs, tax and interest.
The relevant legislation is in Part 3 (‘enforcement by taking control of goods’) of the Tribunals, Courts and Enforcement Act 2007 (TCEA07) and supporting regulations. This is Ministry of Justice legislation binding on the whole bailiff industry in England and Wales.
14.2 Bankruptcies and compulsory winding-up
Once a bankruptcy order or compulsory winding-up order has been made, any incomplete ‘taking control’ (England and Wales) distraint (Northern Ireland) action (that is, the goods seized have not been sold), may be completed by us with the authority of the trustee in bankruptcy or liquidator, or the trustee or liquidator may insist on the goods being released to them to sell subject to an undertaking provided by us.
If taking control or distraint has been completed by sale within the 3 months immediately preceding the date of a bankruptcy or winding-up order, the proceeds of taking control or distraint may be surrendered to the trustee in bankruptcy or liquidator if the trustee or liquidator is unable to pay the preferential creditors in full from other realisations.
The trustee or liquidator must satisfy us that such a shortfall regarding preferential creditors exists.
When taking control or distraint is completed by sale more than 3 months before the making of the bankruptcy or winding-up order we are entitled to retain the sale proceeds.
In Scotland, attachment will not be taken against a sequestrated trader for the duration of the sequestration.
14.3 Creditors’ voluntary winding-up, members’ voluntary winding-up, administrative receivership, voluntary arrangements and company administrations
If taking control or distraint has been completed (goods in possession of HMRC), either physically, under a Controlled Goods Agreement (England and Wales) or walking possession (Northern Ireland) before the appointment of a liquidator, administrative receiver or administrator, then the distraint or attachment remains valid and will be maintained and may be completed (read paragraph 14.3.3).
14.3.1 Voluntary arrangements
Taking control or 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.
When a controlled goods agreement or walking possession has been entered into, our support for a proposal is likely to be on terms such that the element of our claim equivalent to either the value of that claim or the agreed valuation of the controlled goods (whichever is lower) shall be a priority claim in the arrangement.
When the proposals are rejected at the creditors’ meeting we will proceed to complete the seizure by sale.
14.3.2 Administrations
Once an administrator has been appointed, taking control or distraint may not be instituted or continued against the company or the property of the company except either with the:
- consent of the administrator
- leave of the court
Although, in view of the special rights taking control or distraint gives us over the seized goods, we will generally try to reach a financial settlement with the administrator without the need to seek court directions. The process of ‘binding goods’ under TCEA07 by issuing an enforcement notice considerably strengthens HMRC’s position in this respect.
14.3.3 Sale of controlled or distrained goods
In many cases we’ll agree to the office holder selling the seized 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 seized goods directly to us.
We reserve the right to remove and sell controlled or distrained goods at any time.
Any money we receive for the sale of controlled or distrained goods will be set against costs and then against the earliest pre-insolvency liability, with our claim amended accordingly.
14.4 Floating charges
When a floating charge crystallises on the appointment of an administrative receiver or some other event specified in the debenture, control or distraint will still be maintained and completed if we have already seized 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 (read paragraph 14.3.3).
15. Partial exemption
16. Partnerships
16.1 How we deal with partnerships
When a partnership becomes insolvent, we may pursue any of the partners for any liability due.
16.2 All partners insolvent
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.
16.3 One or more partners remain solvent
Responsibility for submitting and paying returns remains with the solvent partners.
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.
16.4 Partnership wound up but individual partners remain solvent
The office holder will be treated as the taxable person with effect from the date of the winding-up. They will be responsible for submitting 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.
16.5 Insolvent partners with different relevant dates
We will lodge individual claims in the individual estates of the partners calculated from their respective relevant dates.
17. Law of Property Act
18. Transfer of a business as a going concern (TOGC)
19. Retention of insolvent trader’s records
19.1 How to keep books, papers and records
The liquidator may destroy the books, papers and records, including the VAT records, of the insolvent company 1 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.
20. VAT group registrations
20.1 What a VAT group registration is
A VAT group registration allows 2 or more companies or limited liability partnerships, known as ‘bodies corporate’, to account for VAT under a single registration number.
20.2 How VAT group registration works
The group is registered in the name of the representative member, who is responsible for completing and submitting the single return on behalf of the group. Whilst the representative member is responsible for paying the VAT or receiving any repayment due, all the group members are jointly and severally liable for VAT debts incurred during the period of their membership.
20.3 The criteria for VAT group membership
Only corporate bodies established, or with a fixed establishment, in the UK can be members of a VAT group. Such corporate bodies must also satisfy the control condition.
20.4 The control condition
The control condition is that all members of the group are controlled either by one member of the group or a single other ‘person’ who is not one of the members of the group. That person can be a body corporate, an individual or a partnership. That person is known as the controlling body.
20.5 Where to find out more about VAT group registrations
More information can be found in Group and divisional registration (Notice 700/2).
20.6 The impact of insolvency on existing VAT groups
20.6.1 Insolvency of the controlling body
If a controlling body for a VAT group registration becomes insolvent, an insolvency practitioner is appointed. In such circumstances, the VAT group registration does not need to change, unless the controlling body ceases to meet the control criteria as set out in the VAT Act 1994 s43A and 43AZA.
The control, which must be exercised in order fulfil this condition, is set out section 1159 of and Schedule 6 to the Companies Act 2006.
For more information read Group and divisional registration (Notice 700/2).
20.6.2 Insolvency of a group member
If an insolvency practitioner has been appointed over any VAT group member other than the controlling body, it may remain in the VAT group with effect from the date the insolvency practitioner is appointed, as long as the group continues to meet the control conditions as set out in the VAT grouping rules set out in the VAT Act 1994 s43A and 43AZA.
The control, which must be exercised in order fulfil this condition, is set out section 1159 of and Schedule 6 to the Companies Act 2006. For more information, read paragraph 2.9 in Group and divisional registration (Notice 700/2).
If the VAT grouping control conditions for the group member are no longer met, then the entity should be registered for VAT separately. If the insolvent group member being removed is the representative member, it will be the responsibility of the VAT group to nominate a new representative member and inform us accordingly.
The joint and several liability of VAT groups will be unaffected by this change. Each member of the VAT group will continue to be jointly and severally liable for any VAT debts.
For more information, read the VAT groups manual VATGROUPS01500: liability of VAT group members.
21. Submission of VAT forms
21.1 Where do I send VAT forms
New style VAT100 2021 VAT Returns
Value Added Tax
HM Revenue and Customs
BX9 1WT
VAT7 — Applications to cancel your VAT registration
BT VAT
HM Revenue and Customs
BX9 1WR
VAT426 — Insolvent traders claim for input tax after deregistration
Debt Management — EIS NCL
HM Revenue and Customs
BX9 1SR
VAT427 — Claim for input tax relief from VAT on cancellation of registration
HMRC Payments VAT/CT61
HM Revenue and Customs
BX9 1XD
VAT50-51 — Apply for VAT group registration or amend your details
BT VAT
HM Revenue and Customs
BX9 1WR
VAT 769 — Notification of insolvency details for bankruptcies
Debt Management
Enforcement and Insolvency Service
HM Revenue and Customs
BX9 1JR
VAT 769 — Notification of insolvency details for compulsory liquidations, creditors voluntary liquidations and members voluntary liquidations
Debt Management — EIS NCL
HM Revenue and Customs
BX9 1SR
VAT 769 (Scotland and Northern Ireland) — for sequestrations, trust deed and receiverships (excluding members voluntary liquidations)
Debt Management — EIS E
HM Revenue and Customs
BX9 1SD
VAT 769 (Cardiff) — company administration and voluntary arrangements
Debt Management — EIS C
HM Revenue and Customs
BX9 1SH
22. Funded pension schemes
When a company is being wound up, VAT is deductible on supplies under section 94 of the VAT Act 1994 if the company:
- still exists as a legal entity
- is still receiving supplies for which it’s liable for VAT
This includes VAT on costs incurred in winding up the company’s occupational pension scheme.
The company can reclaim the balance of the VAT deductible on these supplies for the relevant period if this is more than the tax the company owes us for that period. Claims are made through its insolvency practitioner.
You can find more information in Funded pension schemes (Notice 700/17).
23. Unincorporated associations and clubs, and payment of Corporation Tax
24. PAYE
24.1 PAYE and National Insurance contributions payments that straddle pre and post appointment periods
Where a payment to an employee covers both pre and post appointment periods, all the Income Tax and National Insurance contributions deducted and due on any payslip issued to the employee after the relevant date of the formal insolvency procedure, should be paid to HMRC as an expense of the insolvency.
A formal insolvency procedure can include:
- in administration
- compulsory liquidation
- creditors’ voluntary liquidation
- bankruptcy
- sequestration
This is described in section 18 of the Income Tax (Earnings and Pensions) Act 2003, it states that PAYE applies at ‘the time the payment is made’ or ‘the time when a person becomes entitled to payment of or on account of the earnings’.
All the income tax and National Insurance contributions due at the time of payment should be returned to HMRC by the employer who made the payments.
For more information, read the Employment income manual EIM42270: employment income: basis of assessment for general earnings: the time when earnings are received: actual payment.
A company’s existing PAYE Scheme should continue to be used for these post-appointment payments. A new PAYE scheme is not necessary.
For more information, read the PAYE manual PAYE21130: Employer records: maintain employer record: insolvency of employer.
24.2 Employment Protection Act (EPA) schemes
24.2.1 Recording tax and National Insurance for former employees of an insolvent entity
There may be times when you need to record tax and National Insurance due on a dividend paid to the former employees of an insolvent entity.
For example:
- holiday pay
- arrears of pay arising before the date of insolvency
- pay in lieu of notice claims
- redundancy pay
Help us make sure these payments are allocated correctly by setting up a new EPA scheme.
You should:
- contact us to set up the scheme only when you are ready to make the payments
- make sure when making payment that the Accounts Office reference number for the EPA scheme is used to ensure correct allocation of funds
- once the final dividend payment has been made, make sure HMRC receives a final Full Payment Submission (FPS) with a cessation date
This will prevent any reminder or late penalty notices being issued, should the scheme remain open.
24.2.2 How to set up an Employment Protection Act (EPA) scheme
Contact HMRC’s employer helpline.
Tell the adviser you need to set up an EPA scheme.
They will ask you for the following information:
- the name and National Insurance number of directors (if available)
- the phone number and email details of the insolvency practitioner
- the registered office address of the insolvency practitioner
- any other correspondence addresses we may need to note for you
- date of the first pay day
- EIS reference number
Our adviser will then ask some more questions and tell you what you’ll receive and when.
Once the EPA scheme is set up, read PAYE and payroll for employers for guidance on operating PAYE.
24.2.3 Making additional payments
If you need to make additional payments after the final FPS has been submitted, submit another FPS with the revised date of cessation.
This can only be done in either the:
- same tax year as the date of cessation or cancellation
- next tax year after the date of cessation or cancellation
For any other year, a further scheme will need to be set up.
24.2.4 Additional Information
We are still receiving some payments of tax and National Insurance contributions due on these payments where an EPA PAYE scheme has not been set up. This means we’ve been unable to allocate the payments and update the employees PAYE tax and National Insurance contribution records.
If you set up an EPA scheme you must submit an FPS, failure to do so means we’ll be unable to allocate the payments and update the employees PAYE tax and National Insurance contribution records accordingly. We cannot accept this information by letter.
For guidance on this process read PAYE and payroll for employers.
25. Plastic Packaging Tax
Find out how to tell HMRC about insolvency for Plastic Packaging Tax.
26. The Mid-sized Business (MSB) temporary Customer Compliance Manager (tCCM) model
26.1 What the tCCM team do
The tCCM team provides temporary one-to-one compliance support to MSB customers with greater complexity, multiple interactions with us and those going through key life events. Once appointed to a customer, the tCCM acts as the nominated point of contact in HMRC. The tCCMs work alongside other Tax Specialists in the department to progress and resolve any tax issues and interventions the business may have.
26.2 How long a tCCM is allocated
The length of time a tCCM is allocated differs depending on individual customer needs. A clear exit point will be agreed during the opening discussion with the business and kept under regular review.
26.3 Businesses which can apply for a tCCM
The tCCM model is for MSB customers,including those subject to insolvency procedures. MSB customers are defined as having a turnover of over £10 million or more than 20 employees. A business may be suitable for a tCCM if they are a mid-sized business and:
- are experiencing considerable difficulties in managing their tax affairs
- are going through key life events
- are experiencing a period of significant growth which requires a number of interactions with HMRC
- have multiple enquiries or tax-related issues across the corporate group
- are new to regulatory regimes (Senior Accounting Officer, Publication of Tax Strategy, Country by Country reporting, and so on) and require additional support
As the team is small, they prioritise allocation of tCCMs and may not be able to provide at CCM to every business who requests one.
26.4 How to apply for a tCCM
Customers (or their agents) can ask to be considered for a tCCM by contacting the MSB Customer Support Team in Get help with a tax issue as a mid-sized business.
27. Climate Change Levy
Find out how to tell HMRC about insolvency for Climate Change Levy.
Your rights and obligations
Read the HMRC Charter to find out what you can expect from us and what we expect from you.
Help us improve this notice
If you have any feedback about this notice, email: customerexperience.indirecttaxes@hmrc.gov.uk.
You’ll need to include the full title of this notice. Do not include any personal or financial information like your VAT number.
If you need general help with this notice or have another VAT question, contact the VAT helpline.
Putting things right
If you’re unhappy with HMRC’s service, contact the person or office you have been dealing with and they’ll try to put things right.
If you’re still unhappy, find out how to complain to HMRC.
How HMRC uses your information
Find out how HMRC uses the information we hold about you.