INS12363 - Effects of insolvency on particular situations: Crown Set Off
Introduction
Cases not considered for Crown Set-Off
Initial action
Action taken by the Crown Set-off Team
Pre-Insolvency VAT repayments made after the relevant date
Credits from other Government Departments
Problems
Introduction
When a business is owed a VAT credit at the relevant date it may be offered to other Government Departments to settle debts which they are owed by the trader. This is called Crown Set-Off.
The responsibility for the transfer of VAT monies to other Government Departments lies with National Insolvency Unit, Liverpool.
Any pre-relevant credit of £500.00 or more is to be offered for Crown Set-Off where applicable. When Crown Set-Off enquiries have commenced, it is important that enquiries sent out to ICHU/EIS and other Government Departments should be followed up promptly if no response is received. Any delays in conducting Crown Set-Off could result in a claim for Statutory Interest.
Cases not considered for Crown Set-Off
- Credit is less than £500
- Credit is secured by a fixed charge on book debts
If there is any evidence in the file to suggest a fixed charge on book debts (i.e. correspondence or statement of affairs showing book debts under “Fixed Assets” or “assets specifically pledged” confirm the facts with the Insolvency Practitioner. Further information on charges is given at INS48060.
A copy of the debenture is also requested to verify, if not available continue with CSO action.
Initial action
Crown Set-Off cannot normally take place where returns are outstanding unless the IP confirms that he is unable to render those outstanding returns. Where returns are outstanding the mainframe will have raised nil or positive assessments unless the period is over two years old. Where the period is over two years old take the following action:
- Caseworkers request in writing whether or not the assessments are to remain on file
- Nil pro-forma returns are to be input for periods over two years old with no established liability unless there is new evidence to suggest that tax is due.
- Assessments should be increased with VAT 146 if there is evidence of a higher tax liability from scrutiny of the Statement of Affairs.
- Once the final position has been established progress the case as appropriate.
- Returns are to be verified if appropriate at this stage before referring to the Crown Set-off Team.
Where a caseworker establishes that there is a valid credit to be offered for Crown Set-Off, an IB16 is to be completed, showing a breakdown of how the credit arises, and forwarded to Crown Set-off Team to initiate Crown Set-Off enquiries.
Where credit to be offered exceeds £20,000 referral should be authorised at Officer level.
The Insolvency Practitioner should be aware of the credit available for Crown Set Off as the mainframe automatically issues a VAT 159 (Notification of credit for Crown Set-Off).
Action taken by the Crown Set-off Team
- On receipt of the IB16 check all details and then input onto the Unit Access database.
Issue initial enquiry letters to:
EIS Belfast for Northern Ireland Administration cases
EIS Edinburgh for Scottish Administration cases
EIS Worthing for English Administration cases
ICHU for all other insolvencies
Redundancy Payments Office (as an agent for DTI), and Ministry of Defence.
The addresses for all these departments can be found at the attached link (Word 27.5KB).
- B/F the case for 2 weeks .
- If no response or an interim claim only is received within 2 weeks then issue a further reminder requesting claims to be submitted.
- When all final claims have been submitted or 4 weeks has expired, allocate Crown Set-Off accordingly and repay any balance to the Insolvency Practitioner by Manual Repayment.
- Issue advice letters to the Government departments and the Insolvency Practitioner.
It is important to note that all HMRC debts are to be satisfied in full first before allocating any credit to RPS/MOD debts.
Set-Off enquiries completed
Once Crown Set-Off team has established the existence of other Head of Duty or Government Department debts:
- Remove the credit from the VAT account
- Pay the notified ICHU/EIS claims first, then any surplus credit to RPS/MOD. Any remaining monies available after OGD claims have been satisfied are due to the IP.
- Forward a copy of the advice to the IP of the sum for Set Off to the caseworker
- If there are no other Government Department debts the Crown Set off Team will notify the caseworker who will then make the repayment to the IP.
Pre-Insolvency VAT repayments made after the relevant date
Where a VAT credit has been cashed on or after the relevant date and the credit is either:
- Above £500.00; or
- Will result in a total credit available of over £500.00 (e.g. if there is a credit of £300.00 plus £300.00 repaid in error).
And, this is the only outstanding matter, notify the Crown Set Off Team using an IB16 marked “Repayment in error being pursued”, to allow enquiries to commence.
The IB16 should indicate the TOTAL amount available to be set off once the money has been returned.
Advise the Crown Set-Off Team by memo of the success or failure of any recovery action.
If repayment recovery action is successful:
- Mark all Remittance Advice Slips’ (RAS) for such monies as “Crown Set-Off Monies”.
- Record RAS number, date and amount received in the insolvency file
- Caseworkers to note DTR with amount and where the money has been offset.
- Delete file
Refer the case through line management without delay if the Insolvency Practitioner refuses to return the credit or claims he did not receive it.
Line management will consider whether further recovery attempts are worthwhile through either the Insolvency Practitioner or by pursuing the bank.
Management to pursue IP but do not pursue the bank.
Notify the Crown Set-Off Team immediately of cases offered for Crown Set-Off where:
- returns are belatedly rendered,
- or if a valid debenture is notified,
- or the money repaid,
so that the amount offered for Crown Set-Off can be amended. .
Credits from other Government Departments
Crown Set-Off is a two-way process. The National Insolvency Unit is occasionally notified of credits which are available to reduce the VAT debt. Details of our claim will be obtained from VISION. The caseworker will be notified of the amount received and will allocate the credit to the VAT account.
Calculation to pro-rata monies received from ICHU/EIS or other Government Departments
| Amount received from OGD | = a |
| Total indirect tax claim | = b |
| Preferential claim | = c |
| Non preferential claim | = d |
Formula
| a x c | = | amount to be allocated to preferential |
| b | ||
| a x d | = | amount to be allocated to non preferential |
| b |
Example
| Amount received | = | £500 (a) |
| Total claim | = | £6,000 (b) |
| Preferential claim | = | £4,000 (c) |
| Non preferential claim | = | £2,000 (d) |
| £500 (a) x £4,000(c) = £333.33 | £500(a) x £2,000(d) = £166.66 |
| £6,000(b) | £6,000(b) |
Problems
Any doubts or difficulties should be resolved by referring to line management and/or Crown Set-Off caseworker.
