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HMRC internal manual

Debt Management and Banking Manual

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HM Revenue & Customs
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Set-offs - S130 FA2008: considerations before set-off

Automatic set-off within the computer systems for specific taxes will continue unaffected. However, set-off across taxes is likely to remain a manual operation for some time until we have an integrated tax accounting system.

Cases for set-off will continue to be identified and actioned as part of “normal” day to day work. If the repayment is insufficient to cover all debts where there is more than one, it should be appropriated as outlined in the guidance on appropriation of payments in DMBM210100.

Where you discover a repayment and an outstanding debt you should make every effort to set one against the other. Do not hold up repayments where you are not already aware of a debt. Before pursuing debts you should not check for possible repayments unless you are aware that one is imminent or unless your next action would be to review the case in preparation for enforcement. If it is clearly uneconomical to set-off you should exercise your discretion and in some cases which involve very small amounts you should consider not making the set-off.

Monetary limits

There is no upper monetary limit to the amount that can be set-off but Banking Operations may implement an administrative limit, see DMBM700080. Similarly, caution must be exercised to ensure that value for money in all transactions is maintained. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)  

Timing

Do not hold up a repayment in order to wait for a debt to arise or mature, or hold back from enforcing debts because a repayment is due “soon.” Requests for set-off are a priority and should be actioned without delay. Delays may impact on HMRC resulting in repayment supplements being applied.

Authority for set-off and notifying the taxpayer

It is not necessary to obtain the taxpayers consent before making a set-off. However, after you have carried out the set-off the taxpayer must always be told in writing of the action you have taken.

Once a set-off has been made:

  • write to the taxpayer telling them what you have done and
  • advise what you propose to do where any balance remains outstanding.

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

Control

Set-off has the same effect as a payment or a repayment to a taxpayer and must therefore be considered carefully. We also need to be alert to the possibility of exploitation.

The Corporate Finance Tax Accounting Policy Team must be consulted on any case where an officer feels that set-off may be necessary in contentious or unusual circumstances or where reference to HMRC solicitors is necessary.

Interest, penalties and surcharges

Established penalties, surcharges and interest charged up to the point of set-off may be included in a debit DMBM700030.

Any interest or repayment surcharge payable on a repayment may be included in a credit. When it involves interest on self assessment or corporation tax, take into account the common period rules in DMBM401070.

The effective date of payment (EDP) of the credit must be included with disposal instructions every time a set-off is made to ensure that accrued interest can be calculated correctly.