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New legislation in the Finance Act 2008 is to extend the principle of set-off across a wider range of debts administered by HMRC.
The new proposals also remove the need to seek authority from taxpayers before the set-off takes place. However, HMRC must still advise the taxpayer in writing what has been done. HMRC have explained the new policy on their website and extracts from that follow.
The vast majority of set-offs take place automatically, supported by established procedures for reallocating payments clerically. Guidance is available to staff making set-offs from indirect to direct taxes and vice versa.
From now on, however, HMRC may make a set-off at any time where an amount is due from and payable to HMRC for the same legal person or entity at the same time.
Where HMRC are obliged to set off under specific legislation, these continue to take priority. Examples of such set-offs are for National Insurance, VAT, landfill tax, aggregates levy and excise drawback, and existing HMRC systems support these mandatory set-offs.
In future, set-off will be at HMRC's discretion or at the taxpayer's request. In particular, set-off will mean that:
- Repayments are set only against established debts. An established debt is a quantified debt that is correctly payable either based on a return from the taxpayer or which has been assessed and either the appeal has been determined, or the period for appeal has passed.
- Payments are allocated using the framework of existing rules; where the aim is always to allocate to taxpayer's best advantage as outlined in HMRC's Debt Management and Banking Manual para 240010.
- Self assessment repayments will still be set automatically against payments on account within the same parameters as they are now.
- Repayments assigned to charity under the self assessment donate scheme will continue to be made to that charity. Other assignments will be secondary to set-off.
There will be no monetary limit to the amount set off, but HMRC may choose not to exercise set-off for small amounts if it is clearly uneconomical or unproductive to do so.
They will not use current tax credit or child benefit awards to pay other tax debts. Finally HMRC will only set other tax repayments against tax credit or child benefit overpayments when requested to do so by the claimant.
Following Royal Assent, the process will operate largely as it does now with cases for set-off being identified as part of the normal day-to-day work.
Set-off across taxes remains a manual process. Except in very limited circumstances which are covered by guidance, HMRC will not hold up repayments where they are not already aware of a debt.
When pursuing debts, HMRC staff will not in every case check for possible repayments unless they are aware that one is likely. However, where staff discover that an overpayment and an outstanding debt exist, every effort will be made to set one against the other.
The aim is that greater use of set-off will reduce costs for taxpayers by reducing the number of payment transactions and the number of non-productive contracts. HMRC will no longer seek the authority of the taxpayer to set-off payments due and debts accrued.
There is no formal appeal against set-off, but HMRC may consider a taxpayer's specific concerns where a set-off has been made. HMRC will always notify the taxpayer in writing that set-off has taken place.
