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HMRC internal manual

Debt Management and Banking Manual

Set-offs - S130 FA2008: background

HMRC has for many years set off repayments against outstanding debts within computer systems and between tax and National Insurance Contributions. The 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. The 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.

The 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

The 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.

Assignment (formerly Offset)

Assignment should occur at a taxpayer’s instigation. The 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.

The assignor assigns the credit that HMRC owes them to the assignee to ‘offset’ (hence the old name for ‘assignment’) against the assignee’s debt to clear or part clear the debt owed to HMRC.

The 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.

The policy

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