13. Crown set-off
How crown set-off and preferential debts work.
HMRC are entitled to set-off any pre-insolvency credits against pre-insolvency debt owed by the debtor in for other duties administered by us. We can offer any remaining credits arising from insolvent traders’ VAT repayment claims accruing before the relevant date to other government departments. This will allow other government departments to reduce or satisfy their claims against the same insolvent trader.
The credits may arise from VAT repayment claims, credits for Insurance Premium Tax, Landfill Tax or Air Passenger Duty. We’ll undertake such set-off whenever it is cost-effective for us to do so, this will usually mean that set-off enquiries will not be initiated for credits below £250.
The balance of any credit remaining following such set-off will be repaid automatically to the insolvent estate, care of the office holder, or to the trader if the business is in a voluntary arrangement, deed or scheme of arrangement or county court administration order.
Crown set-off will take place after either all pre-relevant returns have been received or assessments raised and set-off, or both.
Crown set-off will not apply if the credit is secured by a valid fixed charge on book or other debts.
When we owe a pre-insolvency credit to a debtor and seek to set this off against pre-insolvency debts owed by the debtor, which are both preferential and non-preferential (sometimes called ‘unsecured debts’), this is undertaken differently depending on the UK jurisdiction of the insolvency.
For insolvencies under the law of England, Wales and Northern Ireland, the amount due from us to the debtor must be set-off rateably against the non-preferential debt and the preferential debt, in proportion to the respective amounts of those debts.
In insolvencies under the law of Scotland, set-off operates differently. We will set-off any sums due to the debtor against HMRC non-preferential debt first, then any remainder against our preferential debt.
Find out more about preferential debts.