Insolvency ― points to consider when administering an insolvent business

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note looks at a number of the key VAT considerations to be taken into account when administering an insolvent business.

For insolvency more broadly, see the Insolvency ― overview guidance note.

For in-depth commentary on the legislation, see De Voil Indirect Tax Service V5.187.

What if an insolvent business is partly exempt?

Broadly, partial exemption applies where a business makes a mixture of taxable and exempt supplies, and as a result may not be entitled to recover all the VAT it incurs on costs. Partial exemption is covered in the Partial exemption ― overview guidance note. Partial exemption requirements continue to apply to insolvent businesses.

Consideration of partial exemption methods

In the context of insolvency, partly exempt businesses should consider whether their existing partial exemption recovery methods remain appropriate and result in a ‘fair’ recovery of input tax (given what is likely to be a significant change in circumstances). For example, a business operating the standard method (see the Partial exemption ― de minimis rules guidance note)

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Insolvency ― points to consider when administering an insolvent business

Insolvency ― points to consider when administering an insolvent business