Value Added Tax Act 1994 section 26AA

Disapplication of disallowance under section 26A in insolvency

Section 26AA provides relief from the requirement to repay input tax on unpaid invoices (under section 26A) where the reason for non-payment is that the business has become insolvent.

• Where a business becomes insolvent within six months of a supply (or six months after payment was due, if later), the normal rule requiring repayment of input tax on unpaid invoices does not apply, provided HMRC are notified in writing by the insolvency practitioner or other authorised person.
• If the insolvency procedure ends prematurely — for example, a bankruptcy order is annulled or a voluntary arrangement fails — the relief is withdrawn, and the input tax must be repaid from the later of the end of the six-month period or the date the insolvency procedure ended.
• Where the insolvent person is a partnership, the section applies by treating references to "the person" as references to the partnership, except in relation to bankruptcy orders or voluntary arrangements affecting an individual partner.
• The relief does not apply where the insolvency procedure forms part of arrangements whose main purpose, or one of whose main purposes, is to obtain a tax advantage through the operation of this section.

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