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HMRC internal manual

Debt Management and Banking Manual

Set-offs - S130 FA2008: when we cannot set-off

Tax credits, Child Benefit and Guardian’s Allowance

Tax credits, Child Benefit and Guardians Allowance need special treatment. You may not:

  • use awards of these benefits to reduce a tax debt
  • set a tax repayment against any overpayment of these benefits unless you are specifically asked to do so by the customer
  • disturb procedures for recovering overpayments of these awards by means of instalment plans or from ongoing awards.

Please note that tax credits, in this instance, refers to credits payable to individuals and families only; it does not apply to credits payable to companies.

Assurances have been given by ministers on these points and therefore this must be followed without variation.

In certain types of insolvency

Where a taxpayer becomes insolvent, generally the insolvency rules apply. S131 FA 2008 limits HMRC’s power to set-off so that:

  • it is not possible to set off a post-insolvency credit against a pre-insolvency debit or vice versa
  • where more than one insolvency procedure applies; for example, if a company moves from administration into voluntary winding-up, it will be treated as a continuous period of insolvency.

Questions about set-off which arise after an insolvency process has been applied should be referred for advice to the Insolvency Claims Handling Unit (ICHU) (This content has been withheld because of exemptions in the Freedom of Information Act 2000) (This content has been withheld because of exemptions in the Freedom of Information Act 2000) (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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Other exceptions

You cannot use set-off where the:

  • case is under enquiry and the repayment/set-off is being withheld under S59B (4A) TMA 1970
  • parties are not acting with the same right or in the same capacity; for example, one party is acting as a trustee in respect of the credit but in a personal capacity in respect of the debit
  • legal entity is not the same - see DMBM700010 for the offset policy and authority required
  • legal entity is not the same even in those cases where there is a link between the entities. In VAT groups, the group representative is classed as the ‘person’ for the purposes of set-off; for example, we can not set-off a VAT repayment due to a VAT group representative member against another HoD debt belonging to a company that is a member of that VAT group. We could only set off the VAT repayment due to the group representative member against that representative’s other HoD debts as the credit is due to the same person from whom the debt is also due.
  • debit or credit cannot be properly quantified
  • Adjudicator’s intention for the credit was for HMRC to compensate for official error
  • credit consists of an amount ordered by the court to be paid so that the taxpayer can seek legal justice; for example, hardship cases
  • credit is held as a cash security; cash securities are required for the protection of the revenue but the clear intention is that they are to be used for the purpose of the tax in question. We are confined to applying the money to satisfy a debt in that tax unless the taxpayer agrees otherwise; for example, legislation allows us to request VAT security for the protection of future VAT revenue. Whilst we require the security for this purpose we cannot use it for any other purpose; in other words, other HoD debts that may also arise. However, when the financial security is no longer required see DMBM700050, Debt Technical Offices may receive enquiries from Insolvency & Securities staff asking for confirmation of outstanding debts for such a customer with a view to setting off the security against them. If such an enquiry is made you should provide details of any debts outstanding or confirmation that no debt exists. See DMBM700080.
  • customer’s request is intended to manipulate a tax system (usually VAT, to suppress the one customer charges another reclaims principle of output tax and input tax prior to establishing the final liability).