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20 December 2019
VAT on High Court enforcement fees – an update
Just has been working with Her Majesty’s Revenue and Customs (HMRC) and the Ministry of Justice (MoJ) to clarify who should pay VAT on High Court enforcement fees. We sought clarification of this as we were concerned that some High Court enforcement businesses were charging creditors whilst others were charging debtors.
HMRC and the MoJ have now confirmed that the normal VAT rules apply and that the customer who is the beneficiary of the service is liable to pay VAT. There may be some circumstances where the customer can pass this cost to the debtor and Just are working with the MoJ to issue further guidance on this. We hope to communicate the outcome of this early in the new year.
A statement was published by the High Court Enforcement Officers Association (HCEOA) who are the recognised professional body of the High Court enforcement industry saying that they also agreed with HMRC. They went onto say that in some circumstances the cost of VAT can be passed onto the debtor and this is known as irrecoverable VAT.
Irrecoverable VAT is VAT that cannot be recovered because the buyer purchased services for non-business-related activities. Of course, most organisations that purchase High Court enforcement services do buy the services for business-related activity i.e. the customer failed to pay for their service or goods so the appointment of the High Court enforcement company was necessary to recover that debt.
We think it's great news that the MOJ share the same view as HMRC and Just, that creditors can pay the VAT associated with the cost of enforcement and then recover this from HMRC. Treating VAT in this manner reduces the fees passed onto debtors, reduces the overall amount demanded and therefore makes the debt more recoverable. This does not cost the creditor a penny more as they were paying before, as this cost is recoverable from HMRC.
We have seen a number of customers change their position on VAT and the way they instruct High Court enforcement companies since the release of the HMRC and MoJ position statement and hope to see many more make that change as we enter the new year.
This is an update to the earlier press releases which can be seen here: