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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Set-offs - S130 FA2008: when we can set-off

You can set-off in the following situations.

  • The credit and debit (the two claims) must be due to and from a person in the same right. In other words the person must be one and the same and must be acting in the same capacity.
  • The debit and credit must both be properly quantified and already payable, that is:

    • the debit established (where the amount has been agreed or the time for appeal has either passed or the appeal has been determined)
    • the credit must have cleared all necessary credibility and verification checking.
  • There must be no other statutory or contractual impediments and the action must be regular and proper (you will find more detail in the Propriety and Regularity policy on the Tax Accounting Policy Intranet site).
  • In county court proceedings when a repayment becomes available for set-off against Administration Order (AO) debts, it is no longer necessary to seek leave of the court to make set-off where the repayment relates to a period before the AO was set up. If the repayment relates to a period after the AO was set up then you should still write to the court as in DMBM667880.

Particular care is needed:

  • when identifying the legal persons (entities). For example companies who are separate corporation tax payers may be registered as a group for VAT. Partners in a VAT registration may be separate income tax payers. For when we cannot set-off see DMBM700060.
  • where there is ongoing litigation or arbitration affecting the credit or debit.

MTIC fraud

Under MTIC fraud procedures, different legal entities within the same supply chain can be issued with a Joint and Several Liability (JSL) Notice for a debt under VAT Act 1994 section 77A.

When a valid VAT repayment, authorised for payment is due to any of the entities issued with such a notice, and has not been withheld, it can be set off against the JSL debt for which they are liable. For MTIC set offs see DMBM700090.

Therefore set-off will:

  • be at HMRC’s discretion and will not be reversible without HMRC’s consent. This should only be in cases where there has clearly been an error
  • not remove the ability of a taxpayer to ask for set-off to be made.

However, set-off cannot happen unless the appropriate conditions have also been met (for example where it is requested that a vat repayment be set off against a direct tax debt such as CT or PAYE, the claim must have been verified, agreed and be available for set-off).