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HMRC internal manual

Debt Management and Banking Manual

Enforcement action: country court proceedings: the defendant’s response to the claim: counterclaims


Counterclaim not valid

Part 66.4 of the Civil Procedure Rules 1998 prevents a counterclaim in proceedings by the Crown for the recovery of taxes, or duties recoverable as if they were taxes. The defendant cannot claim to be due a repayment of tax.

The form N9(B) tells defendants that they “may not be able to make a counterclaim where the claimant is the Crown (e.g. a Government Department)”.

Any defence that takes the form of a counterclaim should be treated as invalid. Nevertheless you will receive counterclaims from time to time.

Counterclaim on its own or where the entire defence is a counterclaim

If you receive a counterclaim on its own, or the entire defence is a counterclaim, apply to the court on form N244 with the appropriate fee for:

  • the defence to be struck out under CPR66.4 on the grounds that the defence is a counterclaim
  • summary judgment to be entered for the amount of your claim and interest plus the fees incurred (including the fee for making the application).

Counterclaim forms only part of the defence

Where the counterclaim forms only part of the defence, you should deal with the rest of the defence on its merits and write to the defendant pointing out that you will be applying at the hearing for the counterclaim (and defence, if appropriate) to be struck out.

Challenge that Civil Procedure Rule 66.4 does not include NIC (excluding Class 2)

Exceptionally, in a case involving NICs, the court or the defendant may challenge the application of CPR66.4 to NICs. For claims other than Class 2 you should respond according to the class of NIC shown in the following table.

Class 1, 1A and 1B Paragraph 16 to Schedule 4 of the Social Security (Contributions) Regulations 2001 provides that

“The Income Tax Acts and any regulations under section 203 of the Taxes Act (pay as you earn) relating to the recovery of tax (“the relevant provisions”) shall apply to the recovery of

(a) any amount of earnings-related contributions which an employer is liable to pay the collector … or which he is treated as liable to the collector for any income tax period …; or

(b) any amount of Class 1B contributions which an employer is liable to pay to the collector in respect of any year …

as if each of those amounts had been charged to tax by way of an assessment on the employer…”

TMA70/S66 (1) provides for tax to “…be sued for and recovered from the person charged therewith as a debt due to the Crown…”    
  Class 4 Section 15(2) of the Social Security Contributions and Benefits Act 1992 provides that “Class 4 contributions .. shall be payable … in the same manner as any income tax …”

Section 16(1) provides that “All the provisions of the Income Tax Acts, in particular -

(a) provisions as to assessment, collection … and recovery

… shall, with the necessary modifications, apply in relation to Class 4 contributions … as if those contributions were income tax chargeable under … Schedule D”

TMA70/S66 (1) provides for tax to “be sued for and recovered from the persons charged therewith as a debt due to the Crown…”

In all cases you should submit that, in effect, the provisions of TMA70/S66 (1) apply equally to the recovery of National Insurance Contributions and that for the purposes of proceedings they are deemed to be tax and, therefore, the provisions of CPR66.4 do apply.

Counterclaims to claims for Class 2 NIC

Class 2 NICs are not taxes, duties or penalties. If your claim is for Class 2 NICs, a counterclaim may be made. But the defendant cannot claim to be due a repayment of tax (or other amounts treated as if they are tax). You should apply for the counterclaim to be struck out on the grounds that the defendant shall not be entitled to avail himself of any set-off or counterclaim arising out of a right or claim to repayment in respect of any taxes, duties or penalties.

Challenge that the proceedings are not brought by the Crown

Prior to 21 July 2008, most proceedings were brought in the name of an officer of HMRC. Occasionally this resulted in a challenge that proceedings were not brought by the Crown. Nowadays such challenges should only relate to cases started before that date.

If, in such a case your argument is challenged on the grounds that the proceedings are not in fact proceedings by the Crown, submit to the court that at the time the proceedings were started, Section 66 (1) Taxes Management Act 1970 provided that tax may be sued for as a debt due to the Crown by a collector in their own name. The proceedings are, in effect, proceedings by or on behalf of the Crown.

Similarly, Paragraph 3(1) of Schedule 4 to the Social Security Contributions (Transfer of Functions, etc.) Act 1999 provided for proceedings to be taken for NIC in the name of an authorised officer in a county court as a debt due to the Crown.

Part 20 claims

Part 20 of the Civil Procedure Rules 1998 enables the defendant to join a third party into the proceedings. Typically this happens in partnership cases where the defendant(s) will try to claim indemnity by bringing a former partner into the proceedings.

If you are served with a Part 20 notice, seek immediate advice from the EIS Bradford CCP Technical Team (Debt Management Bradford).