Value Added Tax Act 1994, section 81

Interest given by way of credit and set-off of credits

Part IV Administration, collection and enforcement

(1)Any interest payable by the Commissioners (whether under an enactment or instrument or otherwise) to a person on a sum due to him under or by virtue of any provision of this Act shall be treated as an amount due by way of credit under section 25(3).

(2)Subsection (1) above shall be disregarded for the purpose of determining a person’s entitlement to interest or the amount of interest to which he is entitled.

(3)Subject to subsection (1) above, in any case where—

(a)an amount is due from the Commissioners to any person under any provision of this Act, and

(b)that person is liable to pay a sum by way of VAT, [F716penalty, interest or surchargeF716][F716 penalty or interestF716] ,

the amount referred to in paragraph (a) above shall be set against the sum referred to in paragraph (b) above and, accordingly, to the extent of the set-off, the obligations of the Commissioners and the person concerned shall be discharged.

[F717 (3A)Where—

(a)the Commissioners are liable to pay or repay any amount to any person under this Act,

(b)that amount falls to be paid or repaid in consequence of a mistake previously made about whether or to what extent amounts were payable under this Act to or by that person, and

(c) by reason of that mistake a liability of that person to pay a sum by way of VAT, [F718 penalty, interest or surchargeF718] [F718 penalty or interestF718] was not assessed, was not enforced or was not satisfied,

any limitation on the time within which the Commissioners are entitled to take steps for recovering that sum shall be disregarded in determining whether that sum is required by subsection (3) above to be set against the amount mentioned in paragraph (a) above.F717]

[F719 (4A) Subsection (3) above shall not require any such amount as is mentioned in paragraph (a) of that subsection (“the credit”) to be set against any such sum as is mentioned in paragraph (b) of that subsection (“the debit”) in any case where—

(a)an insolvency procedure has been applied to the person entitled to the credit;

(b)the credit became due after that procedure was so applied; and

(c)the liability to pay the debit either arose before that procedure was so applied or (having arisen afterwards) relates to, or to matters occurring in the course of, the carrying on of any business at times before the procedure was so applied.

(4B)Subject to subsection (4C) below, the following are the times when an insolvency procedure is to be taken, for the purposes of this section, to be applied to any person, that is to say—

[F720 (a)when a bankruptcy order or winding-up order or award of sequestration is made or an administrator is appointed in relation to that person;F720]

(b)when that person is put into administrative receivership;

(c)when that person, being a corporation, passes a resolution for voluntary winding up;

(d) when any voluntary arrangement approved in accordance with Part I or VIII of the Insolvency Act 1986, or Part II or Chapter II of Part VIII of the M20 Insolvency (Northern Ireland) Order 1989, comes into force in relation to that person;

(e) when a deed of arrangement registered in accordance with F721... Chapter I of Part VIII of that Order of 1989 takes effect in relation to that person;

(f)when that person’s estate becomes vested in any other person as that person’s trustee under a trust deed.

[F722 (4C)In this section, references to the application of an insolvency procedure to a person do not include—

(a)the application of an insolvency procedure to a person at a time when another insolvency procedure applies to the person, or

(b)the application of an insolvency procedure to a person immediately upon another insolvency procedure ceasing to have effect.F722]

(4D)For the purposes of this section a person shall be regarded as being in administrative receivership throughout any continuous period for which (disregarding any temporary vacancy in the office of receiver) there is an administrative receiver of that person, and the reference in subsection (4B) above to a person being put into administrative receivership shall be construed accordingly.F719]

(5)In [F723this sectionF723] —

F724(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) “administrative receiver” means an administrative receiver within the meaning of section 251 of [F725 the Insolvency Act 1986 F725] or Article 5(1) of [F726 the Insolvency (Northern Ireland) Order 1989 F726] ;

[F727 (ba) “administrator” means a person appointed to manage the affairs, business and property of another person under Schedule B1 to that Act or to that Order; F727] and

(c) M21 “trust deed” has the same meaning as in the Bankruptcy (Scotland) Act [F728 2016 F728] .

Definitions used in section 81 4

the Commissioners

“the Commissioners” means the Commissioners of Customs and Excise;

Defined in s.96(1) · see it in the full Act
subsection (1) above

(a) the reference in subsection (2) to “subsection (1) above” were to “subsection (1) and paragraph 24(1) of Schedule 9ZA”;

Defined in Sch.9ZA para.24(2) · see it in the full Act

(b) the reference in subsection (2A) to “subsection (1) above” were to “subsection (1) or paragraph 24(1) of Schedule 9ZA”.

Defined in Sch.9ZA para.24(2) · see it in the full Act
VAT

“VAT” means value added tax charged in accordance with this Act;

Defined in s.96(1) · see it in the full Act
business

(1) In this Act “business” includes any trade, profession or vocation.

Defined in s.94(1) · see it in the full Act

Cases considering section 81 8

The Rank Group Plc v Revenue And Customs

[2020] EWCA Civ 550 · 24 April 2020Limits

Section 81 supplies rules for setting amounts due from HMRC against liabilities of a taxable person. The court distinguished those rules from the prior computation of a section 80 repayment. (see paras [16], [32]-[36]) Section 81(3) applies only once an amount is due from HMRC. It permits other VAT liabilities of the claimant to discharge that amount, but does not operate within the section 80(2A) computation for the same accounting period. (see paras [20], [32]-[36], [41]-[44]) Section 81(3A) is a special provision dealing with liabilities omitted because of the same mistake and disapplying otherwise applicable recovery time limits. It was not engaged by the ordinary same-period calculation in this case. (see paras [16]-[20], [35]-[37], [42]-[43]) The relevant liability must arise from the same mistake as the repayment claim. The court left open the wider equal-treatment consequences where section 81(3A) is used for liabilities in other accounting periods. (see paras [16], [20], [22], [42]-[43])

Cardiff City Council, R (on the application of) v Customs & Excise

[2003] EWCA Civ 1456 · 22 October 2003Interprets

Was treated as the statutory set-off scheme governing cross-liabilities between the Commissioners and a taxpayer. Its operation was central to the majority’s analysis (see paras [44], [50]–[60], [68]–[80]). Requires an amount due from the Commissioners to be set against a VAT liability and provides for discharge of the matching obligations. The majority held that the mechanism operated automatically on each return (see paras [44], [71]–[80]). The condition requiring an amount to be due from the Commissioners was satisfied because the Council had section 33 refund claims. This formed the first limb of the majority’s mandatory set-off analysis (see para [72]). The majority held that the Council was liable to pay a sum by way of VAT based on the amount declared in its return, even though the declaration was later corrected. This satisfied the second limb of the set-off (see paras [72]–[77]).

The Rank Group PLC v The Commissioners for HMRC

[2019] UKUT 100 (TCC) · 1 April 2019Interprets

Requires an amount due from HMRC to be set against a liability of the taxpayer, discharging both obligations to the extent of the set-off. The court held that it was the source of the relevant set-off mechanism (see paras [37]-[41]; [55]). Disregards HMRC recovery time limits for the section 81(3) set-off where a common mistake caused an unassessed, unenforced or unsatisfied liability. It requires account of all related amounts payable to and by the taxpayer and is not confined to particular accounting periods (see paras [42]-[44]; [61]-[64]).

What each judgment says about section 81 is in the case-law panel in the full Act.

Amendments and notes

15 notes from legislation.gov.uk

Amendments

  1. F716Words in s. 81(3)(b) substituted (1.1.2023 for specified purposes, 6.4.2024 for specified purposes, 1.4.2026 for specified purposes) by Finance Act 2021 (c. 26), s. 118(2), Sch. 27 para. 22; S.I. 2022/1278, reg. 2(3)(4)(a); S.I. 2024/440, reg. 2; S.I. 2026/370, reg. 3 text substituted for certain specified purposes only, see the commentary. Note: in some cases two versions of the measure may be present: the original version and substituted version.
  2. F717S. 81(3A) inserted (retrospective to 18.7.1996 with effect as mentioned in s. 48(2) of the amending Act) by 1997 c. 16, s. 48(1)(2)
  3. F718Words in s. 81(3A)(c) substituted (1.1.2023 for specified purposes, 6.4.2024 for specified purposes, 1.4.2026 for specified purposes) by Finance Act 2021 (c. 26), s. 118(2), Sch. 27 para. 22; S.I. 2022/1278, reg. 2(3)(4)(a); S.I. 2024/440, reg. 2; S.I. 2026/370, reg. 3 text substituted for certain specified purposes only, see the commentary. Note: in some cases two versions of the measure may be present: the original version and substituted version.
  4. F719S. 81(4A)-(4D) substituted for s. 81(4) (1.5.1995 with effect as mentioned in s. 27(4) of the amending Act) by 1995 c. 4, s. 27(2)
  5. F720S. 81(4B)(a) substituted (15.9.2003) by Enterprise Act 2002 (Insolvency) Order 2003 (S.I. 2003/2096), art. 1(1), Sch. para. 26(a) (with art. 6)
  6. F721Words in s. 81(4B)(e) omitted (1.10.2015) by virtue of Deregulation Act 2015 (c. 20), s. 115(7), Sch. 6 para. 2(13) (with Sch. 6 para. 3); S.I. 2015/1732, art. 2(e)(i)
  7. F722S. 81(4C) substituted (21.7.2008) by Finance Act 2008 (c. 9), s. 132(2)
  8. F723Words in s. 81(5) substituted (1.5.1995 with effect as mentioned in s. 27(4) of the amending Act) by 1995 c. 4, s. 27(3)
  9. F724S. 81(5)(a) omitted (21.7.2008) by virtue of Finance Act 2008 (c. 9), s. 132(3)(a)
  10. F725Words in s. 81(5)(b) substituted (21.7.2008) by Finance Act 2008 (c. 9), s. 132(3)(b)(i)
  11. F726Words in s. 81(5)(b) substituted (21.7.2008) by Finance Act 2008 (c. 9), s. 132(3)(b)(ii)
  12. F727S. 81(5)(ba) inserted (21.7.2008) by Finance Act 2008 (c. 9), s. 132(3)(c)
  13. F728Word in s. 81(5)(c) substituted (30.11.2016) by The Bankruptcy (Scotland) Act 2016 (Consequential Provisions and Modifications) Order 2016 (S.I. 2016/1034), art. 1, Sch. 1 para. 12(6)

Marginal citations

  1. M201986 c. 45.
  2. M211985 c. 66.