Recently we have been made aware about how set-off has been applied by HMRC in a voluntary winding up against a pre-appointment VAT refund owed to the company. In the case in question the IP was about to pay a preferential dividend, having recently submitted the final pre-appointment VAT return so that the VAT refund due could be set-off by HMRC against their secondary preferential claim given that VAT is itself a secondary preferential debt. However, when the final claim was received from HMRC they had actually set-off the VAT refund against the unsecured element of their claim as opposed to the preferential element. After the IP questioned this approach, they were made aware that this was done due to HMRC’s system automatically applying set-off against the non-preferential element rather than the preferential element of their claim. In order for this to be rectified, HMRC had to manually apply set-off against the preferential element of their claim.
This has only become an issue since the
introduction of the secondary preferential status of HMRC, and as IPs you need
to be alive to this issue. You should review any HMRC claim where there is the
potential for set-off to ensure that it is correctly allocated. There is a
decided case on this, Re Unit 2 Windows Ltd [1985] 1 WLR 1383, which indicates
that where set-off applies in respect of a creditor that has both a
preferential claim and a non-preferential claim, the amount due to the creditor
must be applied pro-rata to the different categories of debt to arrive at the
provable amount. This case was decided at a time when HMRC did have
preferential status, so should remain good law under the current legislation
unless, or until, someone is brave enough to challenge it. It is also the
approach set out in the OR’s Technical Manual. If you do find that HMRC have applied set-off entirely
against the unsecured element of their claim, then until such time as their
system is updated to allow for automatic set-off proportionally against the preferential
and unsecured elements of their claim you will have to speak to HMRC so that they
can manually apply set-off.
