Right of set off by HMRC of one tax against another tax.
The question dealt within in this case by the Chancery Division is often raised and concerns Crown right of set off. In this case the trader was owed VAT by HMRC, but the trader also owed an amount to HMRC in respect of other taxes.
HMRC claimed it could set one off against the other. The Court held that the test for equitable set-off was whether a cross claim by HMRC was so closely connected with the traders demand for a refund that it would be manifestly unjust to allow the trader to enforce payment without taking into account the cross claim. The liability to pay VAT and corporation tax arose under two different statutes.
It is important for companies to act in a timely manner to defend debts.
In VAT law there was an express right to set-off credits and debits. There was no evidence as to a corresponding right in relation to corporation tax. In those circumstances the Court held that the claim of HMRC to set off corporation tax and PAYE against a repayment of VAT had to be rejected.