HMRC’s failed attempt to bankrupt solicitor
A recent case concerned a solictor against whom HMRC had secured a bankruptcy order on account of an outstanding payment of VAT due of £28,559.79. The taxpayer’s application to have the order annulled was refused, so she appealed.
Her practice was almost entirely devoted to asylumand illegal immigration cases. She received monthly payments on account from the Legal Services Commission under a block contract. She was required to submit controlled matter report forms which recorded, by client, certain information, including a total cost made up of disbursement and profit costs. In the preparation of her VAT returns, the solicitor’s accountant took the figures in the controlled matter report forms and added VAT. HMRC took the view that those amounts were due from the appellant and issued a statutory demand which led to the appellant being made the subject of a bankruptcy order.
HMRC subsequently accepted that because the taxpayer’s clients’ usual place of residence was outside the UK, the services supplied to them were not subject to VAT.
The taxpayer argued that if the debt was never due, the bankruptcy order should not have been made. The Chancery Division concluded that, based on the legislation in force at the time, the returns did not give rise to the VAT. The taxpayer’s appeal was allowed and the bankruptcy order was set aside.