You should by now have seen that after the Paymex decision we reported a couple of weeks ago, R3 have now received information that an appeal by HMRC against the tribunal’s decision that VAT should not be charged on nominee’s and supervisor’s fees is unlikely. Unsurprisingly, this is causing all sorts of excitement for the regulators, and in due course there will be some formal regulatory reaction, but until then we thought it might be helpful to provide our thoughts on the question “what should IPs do now?”. Apart from anything else, this will give us something to use when responding to all of the emails and phone calls we have received today and will no doubt continue to receive!
We will produce a more detailed article next week exploring some of the implications as we see them, but until then we felt it was more important to establish a base-line for what you should do now. We suggest the following action as a temporary approach until the regulators can come up with some formal guidance:
• Put in protective claims that are near the 4 year limit, but do not push for the money yet.
• Stop charging VAT on new cases, but amend your engagement letters, proposal wording, covering letters and invoices to include a statement that you are not charging VAT at present because of the decision in a recent legal case, but that you reserve the right to do so if HMRC appeal the decision or the position subsequently changes.
• Temporarily “park” any pending closures until the position becomes clearer in the light of guidance from the regulators. Put a clear file note on the case file setting out why you have delayed closure. You can continue to clear up any loose ends and get them ready for closure, but don’t actually close them. They should be put on your diary for review every fortnight. This is only intended to be a very short term measure until the regulators can agree a final solution.
• If there is still no sign of any formal advice from the regulators in say about a month, then rather than keep the case open, potentially incurring additional cost and delaying dividends to creditors or closure for the debtor, take a commercial decision as to whether the likely benefit from the VAT refund, if it is due to the estate, is worth waiting for.
• In cases that cannot be closed because the VAT is material, you should push for the refund and treat it as estate funds. Whether you can then draw the monies as additional fees depends on the wording of the arrangement term (as modified) dealing with your fees. Even if the refund cannot be drawn as fees then it could still lead to an additional distribution being made which would, in most cases, give you a fee for processing it, but again that would depend on the terms of the arrangement. You could then close the case.
• In cases where the VAT is immaterial, you could close them and treat them in the same way that all of the historic closures for the last 4 years are dealt with, once the regulators have had a chance to meet up and agree what that action should be.
Hopefully, this will be really temporary advice and the regulators will come up with something before you have time to do anything significant.
Finally, somewhat cravenly, we should point out these are just our thoughts and they carry no formal weight. We have put them out to help you in your decision making, because we can issue this much faster than a regulator that has more formal procedures to go through before they can act. If in any doubt you should check with your regulator or seek formal legal advice.
