Part A1 of the Insolvency Act 1986 is a debtor-in-possession process designed to give companies in financial distress a temporary breathing space from creditor enforcement action. During this period, the company's directors remain in charge, but a licensed insolvency practitioner acts as a "monitor," overseeing the process.

The moratorium lasts for an initial 20 business day period which can be extended for a further 20 business days by the directors making a court filing (provided the terms of the moratorium are still being met). It can also be extended with creditor consent for up to 12 months. Alternatively, it can be extended by the court.

The treatment of VAT in a Part A1 of IA86 Moratorium

Following a query by R3 as to the treatment of VAT, in particular the filing of returns, for a company subject to a moratorium, HMRC has advised as follows:

"VAT treatment in moratoriums is summarised below in the form of a demonstration on how this would apply in a practical example.

When a corporate insolvency occurs, whether that be an administration, or any type of liquidation,  the office holder takes control of the responsibility to submit VAT returns under Regulation 30 of The Value Added Tax Regulations 1995. In those circumstances split VAT returns are issued under Regulation 25.

However, this is not considered to be the situation with a company moratorium as control of the company remains with the directors with the IP being appointed as a monitor.

Therefore, if a VAT return is due during the duration of the moratorium the entire amount would be payable as a moratorium debt and would not be apportioned into amounts due before and after the relevant dates as it is in other insolvency procedures.

For example - If for the 01/24 VAT return period where we expect a VAT return to be filed and paid on 07 March 2024, if the company moratorium begins before on 7 March 2024, the 01/24 VAT return liability is considered to be an ongoing liability and should be paid by the company and can be enforced by HMRC.

If the company moratorium begins after 7 March 2024, the 01/24 VAT return liability is included in the moratorium and cannot be enforced by HMRC until the company moratorium has ended."