VAT no longer chargeable to debtors

Regardless of this, HCEO’s have regularly charged VAT to debtors and adamantly insisted they have a right to do so when challenged by debt adviser across the country.

To put this into context, VAT is charged to the customer when providing goods or services, which can then be recouped if the customer is registered for VAT.

As such, the approach of HCEO’s should have always been to charge VAT on their services to the creditor and not the debtor.

HMRC released a VAT notice, which provides their interpretation of the law, but does not have any legal force, in 2016, which set out that VAT should be charged to the creditor, yet this argument was ignored by HCEO's.

Finally, clarification has been provided by the government via a response to a Parliamentary Question in the House of Lords.

The government’s response was as follows:

The news should come as a welcome clarification to debtors and debt advisers across the UK because HCEO’s must now stop charging VAT to debtors on enforcement fees.

A bonus is that anyone who has wrongly been charged and, paid VAT, on the enforcement fees charged by bailiffs since 2014 should have them refunded by the firms who charged it.

It is unclear whether refunds will happen automatically by firms or clients must request a refund, but it is something government should look at enforcing, which should include some penalty and/or compensation paid to the client.

Additionally, whether an individual would be eligible for interest on the amounts wrongly paid to HCEO’s is unclear. This is money that could otherwise have been, had it not been wrongly charged by high court enforcement firms, used to pay down other debt (reducing interest charges), used for required essential expenditure or saved (accruing interest) by the debtor.

As such, it would be prudent of firms to account for this or the government to take this into consideration when looking further at making sure that VAT rules continue to be applied correctly.

If you think you may have been wrongly charged VAT by an HCEO from 2014 onwards, contact Debt Free London so we can make you an appointment for the free help you need. Call us on 0808 164 248, our lines are open Monday to Friday from 10am until 5pm, or complete our online assessment tool below and one of the team will be in touch.