Commentary

RCB/31/08 Set off where right to claim overdeclared tax is transferred

Part V16 Forms and other HMRC material

RCB/31/08 Set off where right to claim overdeclared tax is transferred

RCB/31/08 Set off where right to claim overdeclared tax is transferred

Revenue & Customs Brief, Issue 31. 26 June 2008

Background

A new clause has been introduced into the Finance Bill currently before Parliament. The purpose of the new clause is to close off a potential avoidance opportunity that has arisen as a result of a recent judgment of the Court of Appeal.

In Commissioners of Revenue & Customs v Midlands Co-operative Society [2008] EWCA Civ 305, the Court held that a right to make a claim for overpaid or overdeclared VAT can be transferred, assigned or sold. Prior to this judgment, HM Revenue & Customs (HMRC) had taken the view that only the person who had overpaid or overdeclared the VAT was entitled to make a claim to recover it. Where a person makes such a claim HMRC are required to set-off against it any outstanding liabilities of the claimant.

The avoidance opportunity arises because there is no provision under current law for HMRC to set-off the liabilities of the person who originally overstated the VAT liability (“the original creditor”) if the claim for

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