On 28 March 2017, the Enactment of Extra-Statutory Concessions Order 2017 was made which, amongst other things, enacts ESC3.20. The Order came into force on 6 April 2017.
ESC3.20 disapplied the clawback of input tax credit for an insolvent business that has not paid (or not fully paid) the consideration for a supply. New section 26AA of the Value Added Tax Act 1994 gives broadly the same effect as ESC3.20 in that it “turns off” the disallowance of input tax in cases of non-payment of consideration if:
• the supply took place before the business entered into insolvency proceedings (but, broadly, not more than six months before insolvency – this is a new restriction not contained in ESC3.20)
• HMRC is notified of the insolvency
• the insolvency was not entered into with a main purpose of disapplying the input tax clawback (or obtaining another tax advantage).
The Order can be viewed here.