The Debt Squared Group has been given clearance by HMRC in relation to the lawful application of VAT fees on CRAR (Commercial Rent Arrears Recovery) fees.
The ruling comes amid confusion in the industry over the levying of VAT fees in relation to CRAR.
The Debt Squared Group asked HMRC to clarify the position on VAT charging on the recovery of outstanding debt from businesses falling into arrears on commercial rental payments.
The VAT Clearance Team investigated the matter and issued the ruling that the leading recovery service agency was following the correct procedure. HMRC confirmed tax could only be charged in a transaction between the creditor (landlord) and the Enforcement Agent.
Within the Clearance document, HMRC have confirmed that under no circumstances should VAT invoices be issued to tenants and that Enforcement Agents following this procedure and issuing VAT invoices to debtors are acting unlawfully. Landlords registered for VAT can reclaim the tax from HMRC. The ruling, which HMRC said did not constitute any changes to the law, therefore covers all transactions made by Enforcement Agents since the introduction of CRAR in April 2014.
Rupert Atkinson, chief executive, Debt Squared Group, said: “We believed that many in the industry were incorrectly charging VAT in relation to CRAR fees. We advised our clients on the position of VAT which has now been confirmed by HMRC.”
“We have spent the last five months processing a formal Clearance application with HMRC in consideration of this matter to take it beyond any doubt which has resulted in HMRC providing us with definitive written confirmation in relation to the lawful and required procedures.”
“We welcome the clarification by HMRC which defines the operational procedures required that are determined by the VAT status of the landlord.”
The introduction of CRAR created a major change in the debt collection process for commercial property management agents and landlords and replaced the use of Distress for Rent orders against commercial tenants to recover outstanding rent arrears.
The full documentation can be viewed via the Debt Squared Group website – www.d2group.co.uk