HMRC has transferred its guidance on VAT after registration cancellation from Insolvency VAT Notice 700/56 into the newer Insolvency Practitioner’s Handbook.
The update, published on 3 August 2026, also changes the supporting evidence requested for certain VAT426 claims. HMRC’s change log states that the invoice threshold has increased from claims over £20,000 to £30,000. The current guidance asks office holders to provide supporting invoices for amounts claimed of £30,000 or more.
Form VAT426 allows specified insolvency office holders to claim qualifying input tax after an insolvent trader’s VAT registration has been cancelled.
The update does not introduce a new VAT regime for insolvent businesses. It primarily changes where HMRC’s guidance is located and the evidence requested when higher-value VAT426 claims are submitted.
What changed in Insolvency VAT Notice 700/56?
On 3 August 2026, HMRC removed the information previously contained in section 7 of Insolvency VAT Notice 700/56.
The section previously addressed the treatment of input and output tax following the cancellation of an insolvent trader’s VAT registration. Notice 700/56 now directs readers to section 7 of the Insolvency Practitioner’s Handbook.
HMRC describes the handbook as a central source of guidance for insolvency practitioners and office holders dealing with HMRC. It contains the information from Notice 700/56 and explains both the principles HMRC applies to insolvent businesses and the procedures it expects practitioners to follow.
The handbook is HMRC guidance rather than legislation. Except for its reproduction of the VAT return, it does not have the force of law. It explains HMRC’s interpretation of the law and the procedures it expects insolvency practitioners to use.
Who can use form VAT426 after VAT registration cancellation?
Form VAT426 is used to claim qualifying input tax after an insolvent trader’s VAT registration has been cancelled.
HMRC states that the form is available to trustees in bankruptcy, official receivers, liquidators and administrative receivers. The handbook also refers to trustees in sequestration for Scottish cases.
The form is not available to every insolvency office holder.
Administrators in company administrations, supervisors in voluntary arrangements and liquidators in members’ voluntary liquidations cannot use VAT426. Other excluded office holders include Law of Property Act receivers, court-appointed receivers and office holders appointed under schemes of arrangement.
The correct form therefore depends on both the insolvency procedure and the office holder’s legal role.
For example, a liquidator dealing with a creditors’ voluntary liquidation may be able to use VAT426. An administrator or an MVL liquidator must consider the separate VAT427 procedure.
Using the wrong form may delay a claim and create unnecessary correspondence with HMRC. The office holder should identify the relevant procedure and confirm the correct VAT treatment before submitting the claim.
What input tax can be claimed using VAT426?
VAT426 may be used to claim qualifying input tax on services supplied after VAT deregistration where those services relate to business carried on before deregistration.
It may also cover goods and services supplied and invoiced before deregistration where the input tax has not already been claimed through a VAT return.
HMRC gives professional fees and realisation costs as examples. This may include qualifying fees charged by solicitors, estate agents and other agents engaged during the realisation of the insolvent trader’s assets. The form may also be used for qualifying bad debt relief.
The right to recover input tax remains subject to the normal VAT rules. The goods or services must be used in making taxable supplies. VAT relating to exempt supplies is not generally recoverable through the form.
HMRC states that VAT426 cannot be used for input tax relating to pre-insolvency tax periods, pro forma invoices, petitioning creditor costs or professional charges attributable to exempt supplies. It also cannot be used for goods supplied after VAT registration has been cancelled.
Invoices and supporting records should be retained even where they do not need to accompany the initial claim. HMRC may select a claim for verification and ask to examine the underlying evidence.
When must supporting invoices be provided?
The practical change made on 3 August 2026 concerns the value at which HMRC asks office holders to provide invoices with a VAT426 claim.
HMRC’s update record states that the request for invoices was increased from claims over £20,000 to £30,000 following an amendment to form VAT426.
The current section 7 guidance says:
Provide supporting invoices for amounts claimed of £30,000 or over.
HMRC also states that a complete and correct VAT426 claim will be processed within 30 working days of receipt. Some claims will be selected for verification, and HMRC may withhold repayment while its enquiries are completed.
The increased threshold may reduce the documents that need to accompany some claims at the point of submission. It does not remove the obligation to hold adequate invoices, books and records supporting the amount claimed.
Office holders should therefore retain a complete evidence file regardless of whether the claim reaches the £30,000 threshold. This will help address any verification request and reduce the risk of part of the claim being disallowed.
When should form VAT427 be used instead?
Form VAT427 applies to certain procedures and office holders who cannot use VAT426.
HMRC states that VAT427 should be used in members’ voluntary liquidations, company administrations, voluntary arrangements, deeds or schemes of arrangement and Scottish trust deeds. The criteria for reclaiming input tax are stated to be the same as those applying to VAT426.
The distinction is particularly important because an MVL concerns a solvent company, whereas VAT426 is intended for specified office holders dealing with insolvent traders after deregistration.
Our guidance on members’ voluntary liquidation explains how a solvent company’s affairs are brought to an orderly conclusion. An MVL liquidator considering a post-deregistration input tax claim should follow HMRC’s VAT427 procedure rather than submitting VAT426.
Administrators should take the same care. A company administration is a business rescue procedure, and administrators are expressly excluded from using VAT426.
The form selected should reflect the actual procedure in place. The fact that a company has ceased trading or cancelled its VAT registration does not, by itself, determine which form is appropriate.
How should output tax be handled after deregistration?
HMRC’s updated handbook also addresses output tax on the insolvent trader’s remaining stock and assets.
VAT on taxable stock and assets held at the date of insolvency must be accounted for through post-appointment returns. HMRC states that the registration will therefore normally be kept open until trading has ceased and asset realisation is complete.
Once the VAT registration has been cancelled, the business cannot legally issue a VAT invoice and must not charge VAT.
This can require careful timing where assets remain to be sold, particularly where the estate includes property subject to an option to tax. HMRC advises practitioners to discuss case-specific difficulties with the relevant insolvency team.
The VAT position should consequently be considered before deregistration is completed, rather than only when a later input tax claim is prepared.
What should insolvency practitioners and directors do now?
Insolvency practitioners should update internal checklists, precedent documents and claim procedures so that they refer to the Insolvency Practitioner’s Handbook rather than relying solely on the previous wording of Notice 700/56.
VAT426 processes should also reflect the current £30,000 supporting-invoice threshold. Records should nevertheless be retained for every claim because HMRC may seek verification and may withhold repayment while enquiries are completed.
Directors should ensure that complete VAT records are preserved and handed to the office holder. This includes invoices, VAT returns, details of taxable and exempt activities and records showing which supplies arose before and after the relevant insolvency date.
Early decisions about deregistration, asset sales and record retention can affect the office holder’s ability to account for output tax and recover qualifying input tax later. Clear records can also help distinguish the company’s pre-insolvency liabilities from the transactions for which an office holder assumes responsibility after appointment.
Where directors are considering a formal company liquidation, the VAT position should form part of the planning process. It should not be treated as a separate administrative issue to be addressed only after the liquidator is appointed.
The 3 August 2026 update is procedural rather than a change to the underlying VAT legislation. Its practical importance lies in directing practitioners to HMRC’s current handbook and revising the evidence requested for higher-value VAT426 claims.
Francis Wilks & Jones advises insolvency practitioners, directors and office holders on liquidation, administration and legal issues arising during formal insolvency procedures in England and Wales.
