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HMRC internal manual

VAT Finance Manual

Credit, debts and related services: debts and related services: insolvency practitioner services

An Insolvency Practitioner (‘IP’) provides services to both individuals and companies with regard to:

  • bankruptcy
  • individual voluntary arrangements (‘IVAs’)
  • administrations
  • administrative receiverships
  • company voluntary arrangements (‘CVAs’)
  • compulsory liquidations and
  • creditor’s voluntary liquidations (‘CVLs’).

Part XIII of the Insolvency Act 1986, as well as regulations and statements of practice govern the way an IP can operate. An IP will act as trustee in bankruptcy, nominee and supervisor of individual voluntary arrangements, liquidator, administrator and administrative receiver of companies. Unlike the debt negotiation services described in VATFIN3250, to do the aforementioned tasks an IP must be licensed under the Insolvency Act 1986. To gain this license they must pass the joint insolvency examination and satisfy one of the eight recognised professional bodies, the Department of Business Innovation and Skills or the Department of Enterprise Trade and Investment that they have the necessary practical skills.

Following the Tribunal decision in *Paymex (Decision 00350) *where an IP acts as both the Nominee and Supervisor in any type of formal Voluntary Arrangement then all of the supplies by the IP are exempt. It was determined by the tribunal that the relevant supplies constituted a single composite exempt supply of debt negotiation and payment transfers.

Where the IP acts only as the nominee then that supply is also exempt as a form of debt negotiation. Where the IP acts only as the supervisor and has not previously acted as a Nominee then these supplies will be taxable at the standard rate.

Protected Trust Deeds

A Protected Trust Deed is broadly similar to a Voluntary Arrangement but is only relevant to Scotland. The supplies of an IP who acts for a debtor throughout a Protected Trust Deed are exempt.

Bankruptcy, Sequestation, Liquidation, Administration and other insolvency procedures

The services of IPs in relation to all forms of insolvency other than Voluntary Arrangements and Protected Trust Deeds are taxable.