COM122010 - Repayments/reallocations: non automatic reallocations: reallocation into COTAX - responsible CT office
This subject is presented as follows.
Set off interest against COTAX
Set off of R&D Tax Credit and Creative Industries Tax Credit
General
Where you have a credit that needs to be set off against a COTAX Accounting Period (AP), you should use function DSET (District Set Off) to create the relevant posting on the AP record(s). Details of each set off are passed to OAS.
You need to use function DSET to do one of the following:
- create a credit posting (such as Research & Development)
- set off an interest-bearing amount against a COTAX liability
- set off interest against a COTAX liability
You should not use DSET to set off an overpayment arising on a SAFE record, including CT61 charges, against COTAX. The DM Miscellaneous Charges Unit will reallocate or repay an overpaid charge. See COM23132 for further guidance.
Depending on the circumstances of the case, using DSET may do one or more of the following:
- satisfy an existing liability for the AP on which you have made the set off
- create a reallocation to cover unpaid liabilities on other APs
- create an overpayment
COTAX treats the amount you set off using DSET as a payment made:
- for the AP you set it off against
- on the Effective Date of Payment (EDP) that you enter, but note that the EDP for Research and Development (R&D) Credit and Creative Industries Credit varies depending on how the credit will be utilised
The EDP you enter must be the date from which the company should be given credit for the set off for interest purposes.
You cannot undo a DSET posting once you have made one. You must get it right first time. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
DSET codes
You can select from the following codes when using function DSET (District Set Off). Several of them are rarely appropriate as they apply only to CT Pay and File APs.
50900 CT/ACT for a pre-Pay & File AP. Select this entry when you are setting off an overpayment of Corporation Tax or Advanced Corporation Tax, for an AP that ended before 1 October 1993.
50902 CT/ACT for a pre-Pay & File AP (Northern Ireland). Select this entry if you are in Northern Ireland setting off an overpayment of Corporation Tax or Advanced Corporation Tax, for an AP that ended before 1 October 1993.
50880 ACT for a Pay & File AP. Select this entry when you are setting off an overpayment of Advanced Corporation Tax for an AP that ended after 1 October 1993. It is not appropriate for a repayment that has been created by an ACT carry-back.
50770 S419(4) ICTA 88. Select this entry when you are setting off an overpayment of Section 419 ICTA 1988 or a repayment of Section 419 tax that has arisen as a result of giving relief under Section 419 (4) ICTA 1988 for an AP that ended before 1 July 1999.
50775 IT Deducted at Source. Select this entry when you are setting off an overpayment of income tax deducted at source which is not within the other types in the list.
50888 Research & Development Tax Credit. Select this entry when you are setting off an overpayment of Research and Development Tax Credit.
50889 Land Remediation Tax Credit. Select this entry when you are setting off an overpayment of Land Remediation Tax Credit.
50774 Construction Industry Scheme (CIS25/SC60). Select this entry when you are setting off an overpayment of SC60 or CIS25 tax.
50773 Penalties. Select this entry when you are setting off an overpayment on a penalty charge that is not recorded on COTAX. Do not use this function to set off an overpayment on a CT penalty for an AP ending on or after 1 October 1993. Use function REWD (Direct Reallocation Within COTAX) instead.
50771 Repayment Supplement. Select this entry when you are setting off an overpayment of repayment supplement.
50881 Repayment Interest. Select this entry when you are setting off an overpayment of repayment interest that is not recorded on COTAX. If the repayment interest is recorded on COTAX, use unction REWD (Direct Reallocation Within COTAX) instead.
50901 Late payment interest on Corporation Tax. Select this entry when you are setting off an overpayment of late payment interest other than late payment interest on Income Tax or ACT, that is not recorded on COTAX. If the late payment interest is recorded on COTAX, use function REWD (Direct Reallocation Within COTAX) instead.
50772 Late payment interest on Income Tax or ACT. Select this entry when you are setting off an overpayment of late payment interest on Income Tax or ACT.
51049 Petroleum Revenue Tax. Select this entry when you are setting off an overpayment of Petroleum Revenue Tax only when you are in an Oil Taxation Office.
51069 Advance Petroleum Revenue Tax. Select this entry when you are setting off an overpayment of Advance Petroleum Revenue Tax only when you are in an Oil Taxation Office.
50999 Film Tax Relief. Select this entry when you are setting off an overpayment of Creative Industries Tax Credit.
If you need to use DSET to offset a Tax Credit not mentioned above, use code 50888.
Set off an interest-bearing amount against COTAX
When you use function DSET (District Set Off) the table below shows you what EDP (Effective Date of Payment) to use when setting off the following interest-bearing types of duty into COTAX.
Types of duty |
CT Pay & File Accounting Periods (AP) |
CTSA Accounting Periods (AP) |
|---|---|---|
IT deducted at source |
Nine months and one day after end of the AP |
The day after the end of the AP |
Tax credits |
Not applicable |
The later of the statutory filing date or the date the return is delivered, but see below for further details |
Research & Development Tax Credit. Note: This does not include R&D Expenditure Credits, which do not attract interest |
Not applicable |
The later of the statutory filing date or the date the return is delivered, but see below for further details |
| Creative Industries Tax Credit. Note: This does not include Creative Industries Expenditure Credits, which do not attract interest | Not applicable | The later of the statutory filing date or the date the return is delivered, but see below for further details. |
Land Remediation Tax Credit |
Not applicable |
The later of the statutory filing date or the date the return is delivered |
Construction Industry Scheme (CIS25 / SC60) for deductions up to 6 April 2002 |
Nine months and one day after the end of the AP |
Nine months and one day after the end of the AP |
Construction Industry Scheme for set offs after 6 April 2002 |
The date of the agreement to the set off |
The date of the agreement to the set off |
See Material Dates for full details on all types of tax credits.
For these types of duty, select ‘N’ for the ALLOCATE TO DUTY TYPES AUTOMATICALLY field and then allocate the set off to tax. This allows COTAX to calculate any repayment interest due.
See COM125094 for the relevant action guide.
Set off interest against COTAX
When you use function DSET (District Set Off) to set off interest, the Effective Date of Payment (EDP) is the date the set off is made for:
- repayment interest
- repayment supplement
- late payment interest on CT
- late payment interest on IT or ACT
For these set offs, select ‘N’ for the ALLOCATE TO DUTY TYPES AUTOMATICALLY field and then allocate the set off to interest. You need to do that to prevent COTAX calculating repayment interest when it is not due, as the payment type is not Corporation Tax.
Set off of R&D Tax Credit and Creative Industries Tax Credit
Under s826 ICTA88, companies are not entitled to repayment interest on any of the above credits before the later of the statutory filing date or the date the return claiming the credit is delivered. As a result, the credit is posted onto COTAX with an Effective Date of Payment (EDP) equivalent to the later of those dates to ensure erroneous or excessive repayment interest is not paid.
This does not mean a company cannot receive the credit before that EDP, just that it isn’t entitled to any repayment interest before then.
For example, where APE 31 December 2022
- statutory filing date 31 December 2023
- return e-filed 7 October 2023
- claim for R&D Tax Credit of £10,000
The EDP to enter on DSET (District Set Off) is 31 December 2023. The sum of £10,000 repaid on 12 October 2023 has no repayment interest added because it is repaid before the EDP used for s826 purposes.
However, where the credit is set off against another CT liability of the same Accounting Period (AP), using the s826 EDP could result in COTAX calculating late payment interest beyond the date on which the company could otherwise have received a repayment. Using the above example and assuming the company is not large for the purposes of the instalment regulations:
- R&D Tax Credit claim for £10,000 and
- s455 tax due £12,000
The EDP to enter on DSET is 1 October 2023, that is the normal due date (NDD). There is no repayment interest as all the credit is being used to cover a sum due at 1 October 2023. If the s826 EDP of 31 December 2023 was used, the company would be charged late payment interest for 3 months on £10,000 of the s455 tax due, whereas if it had received a repayment, it could have paid the s455 tax.
You must remember that the earlier EDP only applies to credits that are used to set off against a CT liability of the same AP. So, if the R&D Tax Credit claim is for £10,000 and the s455 tax due is £5,000, the EDP to enter on DSET is:
- 1 October 2023 for £5,000 and
- 31 December 2023 for the balance of £5,000
You must use the date that the return claiming the credit is delivered as the EDP where:
- the company is large and liable to pay by instalments for the AP and
- you are setting off a credit against other CT due for that AP
This is because debit interest accrues earlier than the NDD.
You must ensure that this date is only used for set offs. Where some of the credit is repayable you should still use the s826 EDP on that part, to prevent the company accruing credit interest to which it is not entitled.
Where any credit is to be set off against an outstanding CT liability on an earlier AP:
- first, use function DSET to enter the credit on the AP of the claim, using the date that the return claiming the credit is delivered as the EDP
- then, reallocate against the earlier AP using the same EDP
Set off a Research and Development Expenditure Credit (RDEC)
For full details on RDEC see Corporate Intangibles Research and Development Manual CIRD89700 onwards.
These instructions apply to RDEC that is set off against the record of the claimant company, or set off against the record of another member of the group following a surrender under CTA09/s104O(3) and s104R.
RDEC shouldn’t give rise to credit or repayment interest, therefore it is important that the correct Effective Date of Payment (EDP) is used to minimise the possibility of interest being given.
Step 1
Where the RDEC in Box 530 is equal to, or less than, the Company Tax Return Box 525 figure for tax chargeable, COTAX will process the RDEC onto the record and you will not need to do anything. If there are any incorrect allocations of RDEC against Boxes 490 to 505, these will be dealt with separately at a later date. If the company has already made payments for the period there may now be an overpayment of corporation tax and this should be processed in the normal way. Where the overpayment is as a result of COTAX processing the RDEC the EDP for that element of any overpayment should be noted as the day that the CTSA containing the RDEC claim was received.
An entry in Box 570 of the Company Tax Return for surplus credits payable will populate worklist MRPL (Manual Repayment List). It could be made up of a number of items and you will need to check the computations to see the make-up of the RDEC and the company’s instructions on how any surplus RDEC is to be dealt with.
You should process the RDEC on COTAX as follows:
Step 2
a) Notional tax that can only be used to discharge future CT liabilities (non-repayable), or surrendered to a profit making company to discharge its CT liability for any relevant accounting period, and it isn’t surrendered.
No action is required as the sum will be included by the company in Box 530 of future returns. COTAX will process the RDEC as per step 1 when a return has sufficient tax chargeable in Box 525.
b) Notional tax that can only be used to discharge future CT liabilities (non-repayable) or surrendered to a profit-making company to discharge its CT liability for any relevant accounting period, and the company has chosen to surrender some or all of it. Any unused amount is treated as though it hadn’t been surrendered and a) above applies to it.
The receiving company may have included the surrendered amount in Box 530 of their return. If so, they will automatically receive benefit of the credit and no action is required.
Check that the receiving company has confirmed that it wishes to receive the surrender. If it has done so DSET (District Set Off) the surrendered amount straight onto the receiving Accounting Period (AP), using as the EDP the later of the normal due date (NDD) or the date when the DSET is carried out. Allocate only to duty type tax liability which is shown in Box 475 of the receiving company’s CTSA. RDEC cannot be used to discharge interest at this step. Make a COTAX case note explaining where the DSET has come from.
Step 3
c) Capped RDEC that can only be used to discharge future CT liabilities (non-repayable).
Follow a) above.
Step 4
d) RDEC used to discharge the CT liability of any other AP (CT must be due at the date of the discharge).
DSET onto the originating AP using as the EDP the later of the NDD or the date when the DSET is carried out and allocating to the duty type interest. Immediately reallocate to the other AP using function REWD (Direct Reallocation Within COTAX) to duty type tax. Only reallocate to the extent that there is liability in Box 475 in charge for the receiving AP. RDEC cannot be used to discharge interest at this step.
Step 5
e) RDEC that is surrendered to a profit making company and can only be used by the recipient company to discharge its CT liability for any relevant accounting period. Any unused amount is treated as though it hadn’t been surrendered and steps 6 and 7 then apply to it.
Follow b) above.
Step 6
f) RDEC used to discharge any other liability that is due to HMRC.
Inhibit repayments on the AP before using the later of the NDD or the date of the DSET entry as the EDP, allocate to duty type interest, and then immediately reallocate into OAS using function REOD (Direct Reallocation Out of COTAX) and complete the Intelligent Payment Processing (IPP) Single Form.
Note that ‘any other liability’ could also include a late filing penalty or interest of the CT accounting period. In that case you should allocate to the relevant duty type when using function DSET, using the date of the DSET entry as the EDP.
Step 7
g) RDEC payable to a company.
Use the later of the normal due date (NDD) or the date of the DSET entry as the EDP, allocate to duty type interest, and use function DIRR (Direct Repayment) on the same day to make payment of the RDEC.
See CIRD89820 for occasions when there may be restrictions on the step 7 credit.
Set off an Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC)
For full details on AVEC/VGEC see Creative Industries Expenditure Credit Manual CREC010000 onwards.
These instructions apply to AVEC/VGEC that is set off against the record of the claimant company or set off against the record of another member of the group following a surrender under CTA09/s1179CE.
AVEC/VGEC shouldn’t give rise to credit or repayment interest, therefore it is important that the correct Effective Date of Payment (EDP) is used to minimise the possibility of interest being given.
Step 1
Where the AVEC/VGEC in Box 541 is equal to, or less than, the Company Tax Return Box 525 figure for tax chargeable, COTAX will process the AVEC/VGEC onto the record and you will not need to do anything. If there are any incorrect allocations of AVEC/VGEC against Boxes 490 to 505 these will be dealt with separately at a later date. If the company has already made payments for the period, there may now be an overpayment of corporation tax, and this should be processed in the normal way. Where the overpayment is as a result of COTAX processing the AVEC/VGEC the EDP for that element of any overpayment should be noted as the day that the CTSA containing the AVEC/VGEC claim was received.
An entry in Box 570 of the Company Tax Return for surplus credits payable will populate worklist MRPL. It could be made up of a number of items and you will need to check the computations to see the make-up of the AVEC/VGEC and the company’s instructions on how any surplus AVEC/VGEC is to be dealt with.
You should process the AVEC/VGEC on COTAX as follows:
Step 2
a) Notional tax that can only be used to discharge future CT liabilities (non-repayable) or surrendered to a profit-making company to discharge its CT liability for any relevant accounting period, and it isn’t surrendered.
No action is required as
the sum will be included by the company in Box 541 of future returns.
COTAX will process the AVEC/VGEC as per Step 1 when a return has sufficient tax
chargeable in Box 525
b) Notional tax that can only be used to discharge future CT liabilities (non-repayable) or surrendered to a profit-making company to discharge its CT liability for any relevant accounting period, and the company has chosen to surrender some or all of it. Any unused amount is treated as though it hadn’t been surrendered and a) above applies to it.
The receiving company may have included the surrendered amount in Box 541 of their return. If so, they will automatically receive benefit of the credit and no action is required.
Check that the receiving company has confirmed that it wishes to receive the surrender. If it has done so DSET (District Set Off) the surrendered amount straight onto the receiving Accounting Period (AP), using as the EDP the later of the normal due date (NDD) or the date when the DSET is carried out. Allocate only to duty type tax, liability which is shown in Box 475 of the receiving company’s CTSA. AVEC/VGEC cannot be used to discharge interest at this step. Make a COTAX case note explaining where the DSET has come from.
Step 3
c) AVEC/VGEC used to discharge the CT liability of any other AP (CT must be due at the date of the discharge).
DSET onto the originating AP using as the EDP the later of the NDD or the date when the DSET is carried out and allocating to duty type interest. Immediately reallocate to the other AP using function REWD (Direct Reallocation Within COTAX) to duty type tax. Only reallocate to the extent that there is liability in Box 475 in charge for the receiving AP. AVEC/VGEC cannot be used to discharge interest at this step.
Step 4
d) AVEC/VGEC that is surrendered to a profit-making company and can only be used by the recipient company to discharge its CT liability for any relevant accounting period. Any unused amount is treated as though it hadn’t been surrendered and steps 5 and 6 then apply to it.
Follow b) above.
Step 5
e) AVEC/VGEC used to discharge any other liability that is due to HMRC.
Inhibit repayments on the AP before using the later of the NDD or the date of the DSET entry as the EDP, allocate to duty type interest, and then immediately reallocate into OAS using function REOD (Direct Reallocation Out Of COTAX) and complete the Intelligent Payment Processing (IPP) Single Form.
Note that ‘any other liability’ could also include a late filing penalty or interest of the CT accounting period. In that case you should allocate to the relevant duty type when using function DSET, using the later of the NDD or the date of the DSET entry as the EDP.
Step 6
f) AVEC/VGEC payable to a company.
Use the later of the normal due date (NDD) or the date of the DSET entry as the EDP, allocate to duty type interest, and use function DIRR (Direct Repayment) on the same day to make the payment of the AVEC/VGEC.
See CREC071800 for occasions when there may be restrictions on the Step 6 credit.
Expenditure Credit (RDEC, AVEC and VGEC) for companies where the AP is part of an open Group Payment Arrangement (GPA)
Where a company is participating in an open GPA its Accounting Period (AP) record is locked until the arrangement for the AP has been closed and cleared. Until money has been apportioned out of the arrangement to the participating companies, it is difficult to ensure that all the provisions of Chapter 6A of CTA 2009 are complied with, and that the Expenditure Credit does not have unintended interest consequences. For a GPA you should proceed as follows:
Use function DAPD (Display Accounting Periods) to check the status of the GPA for the AP of the recipient company:
if the GPA is open, ask the Group Payment Team in Government Banking and Payments to temporarily unlock the record so that you can post the DSET (District Set Off) and carry out the necessary actions. Advise them when the action is completed so they can add the company back into the GPA. Contact the Group Payment Team on 03000 583947 (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
if the GPA is closed, we are awaiting either the completed CT630 (Notice of Closure) or CT631 (Apportionment Notice) response from the company. The Group Payment Team will not be able to unlock the record and you cannot add the DSET until this is received. You should BF the case as appropriate and make a COTAX note
if the GPA is cleared, you will be able to post the DSET and carry out the necessary actions immediately. You do not need to contact the Group Payment Team
The Effective Date of Payment (EDP) should be the later of the normal due date (NDD) or the date that the DSET and other entries are carried out.
Set off a SAFE repayment against COTAX
Where you have an overpayment on SAFE or in respect of a CTA charge that has been archived and is being reduced, for the same Accounting Period (AP) the Effective Date of Payment (EDP) is the normal due date (9 months and 1 day after the end of the AP).
For other APs, the EDP is the date on which the amount of the repayment is agreed - this is the amount of tax and any interest payable as calculated manually or refer to COM80200 to see the common period rules.
You must not use function DSET (District Set Off) to set off the overpayment, including CT61 charges, against COTAX.
See COM23132 for more information.
You need to complete a SAFE Repayments stencil (SAFE 1) and give it to your SAFE user who will set the ‘No Repayment’ signal on SAFE if necessary and send the form to the Miscellaneous Charges Unit. You can get the SAFE 1 stencil at Excel > SEES > Forms and Letters > category ‘SAFE’.
You should complete the stencil and enter ‘Repayment Set off’ in the space given to provide the reason for your repayment. In the same space, give full details of the reason and if appropriate details of any repayment supplement or interest that is due including the ‘from’ and ‘to’ dates for all non s455 CTA 2010 charges.
There is a separate section for you to complete where repayment interest is due for s455 charges. Where repayment interest is due you also need to supply the ‘to’ date so the Miscellaneous Charges unit can correctly calculate the interest due on the set off.
In the ‘Repayment Nominee’ box, enter the UTR, AP number and duty type where the overpayment is to be allocated.
The Miscellaneous Charges Unit will arrange to reallocate the overpayment to the COTAX charge using OAS.
Please note that:
- A payment type posting is recorded in VPPD (View Payment and Posting Details) when you use DSET and cannot be undone. You must use DSET carefully to ensure correct details are used. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
- You should use function DSET when you review the cases entered on the MRPL (Manual Repayments List).
- There are genuine risks in making manual repayments outside of COTAX and you must ensure that COTAX is updated to accurately reflect manual repayments.
See: