»Ê¹ÚÌåÓýapp

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HMRC has for many years set off repayments against outstanding debts within computer systems and between tax and National Insurance Contributions. »Ê¹ÚÌåÓýapp judgment of Walker L J in the case of Mellham v Burton [2006UKHL6] confirmed that set-off is a normal business principle.

S130 FA2008 gives HMRC the power, with effect from 21 July 2008, to set-off amounts that are due to be repaid to a person against debts owed to HMRC by that person, including contract settlements. »Ê¹ÚÌåÓýapp power to set-off applies only in England, Wales and Northern Ireland and aligns with existing common law in Scotland. It enables HMRC to operate UK-wide across the whole range of debts administered by them. However Tax Credit payments, Child Benefit payments and Guardians Allowance need special treatment as a matter of policy.

For further information see DMBM700060.

»Ê¹ÚÌåÓýapp power is limited in insolvency by S131 FA2008, which prevents repayments for periods after a person’s insolvency being used to satisfy debts from before their insolvency (unless the repayment also relates to the earlier period).

Application of set-off

»Ê¹ÚÌåÓýapp new power does not affect HMRC’s duty to set-off in specific circumstances such as S81 (3) VATA 1994 and some NICs and so on. Where HMRC is already obliged to set-off under specific legislation these set-offs will continue to take priority. Examples are for NICs, VAT, Landfill Tax, Aggregates Levy and Excise Drawback and existing HMRC computer systems support these mandatory set-offs.

Significantly the legislation:

• removes the need to seek authority from taxpayers before set-off takes place
• reinforces the need to tell the taxpayer of the set-off in writing.

An ‘INDC21 Notification of a set-off� letter is available on SEES Forms and Letters.

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Assignment (formerly Offset)

Assignment should occur at a taxpayer’s instigation. »Ê¹ÚÌåÓýapp taxpayer (the assignor) assigns their right to a repayment or other credit to a debt owed to HMRC by another taxpayer that is a different legal entity. This entity is the assignee.

»Ê¹ÚÌåÓýapp assignor assigns the credit that HMRC owes them to the assignee to ‘offsetâ€� (hence the old name for ‘assignmentâ€�) against the assignee’s debt to clear or part clear the debt owed to HMRC.

»Ê¹ÚÌåÓýapp assignor must make a clear and unequivocal written request asking HMRC to assign a specific credit to part-pay or clear a specific debt of another entity or several entities. Any officer who receives a request for assignment either verbally or in writing must ensure conditions are met and authority is received prior to submitting a VAT 915 for agreement and processing.

For information on what is required to process an assignment using VAT credits, see DMBM700080.

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»Ê¹ÚÌåÓýapp policy

»Ê¹ÚÌåÓýapp policy for both set-off and assignment is owned by Finance. HMRC Tax Accounting Policies contains full details of both.