We had hoped to post before now with something more positive to say, but as resolution of this ever more complex issue appears some way off, we wanted to let you know just where we are in dealing with it.
A recent VAT Tribunal has decided that Nominee and Supervisor fees should not be subject to VAT. As a result, it is now possible to claim back VAT wrongly paid over to HM Revenue and Customs over the past four years, and put it back into the IVAs from which it was taken. We have submitted the claim to HMRC in accordance with their direction and are awaiting the funds from them.
Our regulator, the IPA, has issued guidance for closing cases in relation to this VAT issue, saying that:
"Where possible, cases which would otherwise be due for closure should be kept open where a claim has been or is to be made either by exercising the discretion usually included in a proposal or by seeking a variation. This is because a Supervisor is likely to have more extensive powers in an open case and could therefore deal with the issue more easily. As this appears to be a proper exercise of the Supervisor’s powers, criticism would be unjustified."
Even if everything else due has already been paid into an IVA, the VAT refund is covered by the windfall clause - which means that creditors have the right to receive it, and the Supervisor has a duty to recover it for their benefit. To do this, the Supervisor has to continue his administration of the IVA - he therefore cannot close it until the VAT refund has been received and paid to creditors.
Whilst this is very frustrating - particularly for Grant Thornton and many of our clients who have already fulfilled their obligations under the terms of their IVA - unfortunately we cannot ignore the guidance from our regulator or the windfall provision in IVAs. We at Grant Thornton are equally frustrated with this situation, and are working hard with our legal advisors and regulators to get clarity on the issues that we know our clients are currently facing, particularly on:
- how we deal with windfalls (such as the VAT refunds) received after an IVA has effectively completed;
- can we issue a completion certificate once our clients have made all of their payments?
- whether the IVA Register can be updated when our clients have effectively completed their IVAs (regardless of the VAT issue); and
- how this may affect our clients credit ratings in the future.
We completely understand that the above is as important to our clients as is receiving and paying the VAT refund to those entitled to it - we would hope that the clarity we all need can be received very soon.
Finally, we can only apologise for the inconvenience this has caused.
Karol - thank you for posting GT's stance on this very emotive subject.
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Hi Karol - I am sure your post is a welcome note to many of the posters with GT - even though you are unable to give them anything definitive at present as none of us can, just to get an update on GT's position will have given them comfort of some knowledge.
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I completely agree with the position GT have stated here, and whilst the guidance makes it clear that it is within the IPs discreton as to which route to take, considering all of the inherant risks associated with closing cases without complete clarity, this seems to be the only sensible way forward at present.
I have a meeting with Counsel lined up for early next week, following which I will be consulting with my own regulator to agree a way forward. I think that Karol's post shows that some good and hard work has being going on behind the scenes for GT clients, which they are only now able to share - and for all of us the situation remains fluid and subject to change.
My personal view is that the closure of a case should not affect anyone's rights to receive the monies they are entitled to - however I, along with my fellow professionals, must and in some way reluctantly follow our own professional advice to risk being held personally liable to any party in the future. I hope that the situation will be shortly clarified for all concerned.
Thanks Karol,
I am so glad that this should be sorted by the time I finish as I would be as frustrated and anxious as everyone else if mine couldn't be closed because of this VAT issue.
If life is what you make it, I must have been in a strange mood when I made mine
Am I missing something here - surely the IP (GT in this case) has incorrectly overcharged the IVAs by levying VAT on their fees. The IVAs are therefore owed monies by GT, not by HMRC. It is down to GT to then recover the VAT for themselves from HMRC. Why should they be able to wait to receive the monies from HMRC before refunding the IVA (this would not be the case in normal business to business cases).
I'm sure Karol and Melanie have different a view and I'd love to hear it.
We were not incorrectly charging VAT. VAT has been correctly charged on all of our professional fees since IVAs were created in 1986, and this was confirmed by HMRC in 2007.
In 2011, one IP firm launched a case against HMRC and claimed that IP fees ought to be an exempt supply - and always should have been. I don't agree with the arguments that were put forward, but HMRC did - perhaps on the basis of the substantial taxes they would collect as a result. HMRC caved in and agreed, hence the complete mess the profession is in right now. No IPs would be in a position to fund the refunds personally - and why should we when this action case was only brought in 2011 and so far as we were concerned we were acting completely appropriately.
This debate could go on and on and on and on - but it is not going to make the situation improve or a decision to be made any quicker that we are all striving to achieve.
Vince - it's not an ideal situation but as Mel and others have stated there's little they can do with regards to this.
HMRC are now going to be the ones holding things up.
We're all going to have to move on from this. My f&f meeting is 8th feb and so I will be in this position shortly. I would love to win the lottery and then have to fight to keep it but it's not likely to happen. I shall just be pleased to get the IVA over and done with and I will just have to sit back and wait for my completion certificate.
Now we know this ruling has stopped all firms closing cases and not just the couple we thought, I think we have to put this to bed and know that Mel and karol will no doubt keep us all in the loop.
Kazza, with respect if you are going for a F&F after 7 months you are not really in the same position, as the IVA will still be on your records for another 5 and a bit years.
I do apologise if I keep banging on about this issue, and I'm certainly not having a go at Karol, Melanie or any of the other IPs, I'm just trying to get a full understanding of the issue.
The particularly annoying thing is that for the first 5½ years my IVA was with BE (part of Paymex) who brought this damn case up in the first case. As they would have only done this for their own benefit, I'm guessing that any VAT recovered on the BE fees will not going to the creditors. So the only potential "windfall" for my creditors is the VAT that GT may have charged for the final few months of my IVA. My final annual report prepared by GT last November showed irrecoverable VAT for the final year of £78.97, so I'm wondering if the closure of my IVA is really being held up for such a small amount [Karol, if it's at all possible could you ask Mark to look into this for me]
I'm glad to see that GT have at least submitted the claim - presumably when they receive the refund from HMRC they can go ahead and close cases again?
Glad I am in Scotland where I have been assured that clients can be discharged as per normal but the trustee(IP)can remain in office for a period to allow any ppi issues and the VAT refund pain to be sorted.
Well done for GT and Karol for making the situation pretty clear.
Mel,is there a reason you have a different regulator to GT? Why arent all IVA's covered by the one body?
Paul
Discharged today the 8th feb 2012. View is much brighter now.
Continuing to rebuild our credit worthiness.
