Changes to VAT accounting: some clarificationPrint publication
We have written previously about the discussions between the Association of Property and Fixed Charge Receivers (NARA) and HMRC concerning the duty of LPA receivers to account for VAT and, in particular, whether it is permissible for LPA receivers to set off input VAT.
Following those discussions HMRC have updated Notice 700/56 (the Notice), sections 2 and 17 of which refer to LPA receivers. The Notice confirms the following principles:
- HMRC recognise that the receiver’s obligation to account for VAT is limited to accounting only for the net amount that would be due from the borrower. A receiver may therefore, in respect of the receivership property, set off input VAT in making payments to HMRC for VAT collected by the receiver
- the VAT declaration should be made on Form VAT 833, which should be submitted along with the appropriate payment
- payment may be made by bank transfer; previously payment had to be by cheque.
HMRC have not deviated from their position that refunds of input VAT cannot be made to a receiver, as they can be given to the taxpayer/borrower only.
The problem regarding obtaining confidential information from HMRC – and the discussions to resolve it – remains ongoing. The problem here is that the provision of information on a borrower’s registration, including the VAT registration number and the timing of accounting periods, is constrained by the obligation of confidentiality imposed on HMRC by section 18 of the Commissioners for Revenue and Customs Act 2005. Without some background information being provided by the receiver, HMRC may be unable to disclose information.
NARA is in the process of updating its guidance following the update of the Notice. In the meantime they make the following points:
- receivers should make all possible enquiries to establish the VAT registration status of the borrower and the property, including if necessary seeking copy invoices from tenants or others involved with the property
- receivers should consider setting off input VAT incurred on the property against the output VAT they have collected and consider also how they may be able to plan their VAT accounting so as to maximise such setting off. In deciding the timing for accounting the receiver will have to weigh the duty to maximise recovery, for example by deferring accounting for VAT to such time as will allow the offset of the input VAT to be maximised, against the possibility that the actions for the receiver, for example by delaying accounting for VAT, could expose the borrower to claims from HMRC
- receivers should ensure that all invoices from which they seek to treat the VAT as input VAT are correctly addressed to the borrower or to the receiver as agent for the borrower.
We will keep you updated.