SAM110130 - Repayments: issue repayment: nominations and assignments

General
2008 Finance Act changes
Differences between a nomination and an assignment
A valid assignment
What to do when you receive a letter of assignment
Bankruptcy cases

General

A Self Assessment return and / or claim form R38 enable a taxpayer to nominate someone else to receive a repayment on their behalf. A taxpayer may also authorise by letter that a repayment is to be issued to a nominee.

Some taxpayers choose to go further than just a nomination and legally 'assign' a repayment by  a letter to a nominee. A  letter of assignment assures the nominee that the repayment will definitely be paid to them as opposed to a nomination that can be withdrawn by the taxpayer at any time.

For example, a nominee is frequently the taxpayer's agent and sometimes agents insist that their clients nominate them to receive a particular repayment so they can be sure of getting their fees. But because the taxpayer can withdraw their nomination, some agents are now getting their clients to legally assign a repayment to them to be certain of receiving the repayment.

Sometimes a repayment may be assigned to a loan company that lends money to a taxpayer in anticipation of them receiving a repayment.

If an assignment is received and one is already in place, the original assignment must be revoked before the new assignment can be accepted.

2008 Finance Act changes

Section 133 of the Act closes off the possibility of separating a person’s right to claim a repayment from their liability to pay their HMRC debts by assigning that right to another person. All assignments received on or after 21 July 2008 are secondary to set-off.

In effect S133 allows HMRC to make set-off of any overpayment to a taxpayer’s outstanding debts in accordance with S130 of the Act (HMRC powers to make set-off), before making payment of any remaining assigned repayment to the assignee. This ensures that an assignee cannot receive any more of a repayment than the original taxpayer would have received had the repayment not been assigned.

Also any outstanding debts owed by the assignee should be taken into account and considered for set-off before any assigned repayment is made to the assignee.

Differences between a nomination and an assignment

A taxpayer may nominate someone else to receive a repayment on their behalf by completing the appropriate authorisation on the return, form, by letter or over the phone provided the taxpayer passes the level 2 security questions, and this is known as a 'bare' nomination. In the case of a nomination a taxpayer remains the person legally entitled to the repayment and the repayment is issued to their nominee at our discretion. The taxpayer may also withdraw their nomination at any time prior to the repayment being issued.

The nomination can be withdrawn over the telephone if the repayment is to be issued to the taxpayer(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If a taxpayer legally assigns a repayment to a third party by an assignment, that third party (the assignee) becomes the person (or company) legally entitled to the repayment. The assignment is legally binding, and we have no option but to issue the repayment to the person (or company) to whom it has been assigned.

The assignment can only be revoked if both the taxpayer who made the assignment and the person to whom the repayment was assigned both agree to it being revoked. The agreement to revoke the assignment must be in writing and signed by both parties before being sent to HMRC. Note: An Agent cannot revoke an assignment on his client’s behalf. Both parties to the assignment must sign an agreement to revoke the assignment otherwise it must be returned and the appropriate signatures requested.

An assignee may also nominate someone else to receive the repayment on his or her behalf and this nomination must be in writing and signed.

The person who is assigned to receive the repayment is always able to disclaim their right to the repayment but, where the taxpayer wishes to revoke the assignment, and a dispute arises between the parties, HMRC cannot get involved.

A valid assignment

An assignment may be made by letter and in order to be valid must meet the following criteria

• It must be absolute, that is, the wording should be clear, unambiguous and unconditional. To do this it must state the customer unconditionally gives up the right to a repayment in favour of someone else
• It must be in writing and signed by the individual entitled to the repayment (‘wet’, scanned, photocopied and faxed signatures are all acceptable)
• The actual assignment must be submitted to HMRC (telephone call reporting its existence or photocopy will not suffice)
• The assignment must specify the years involved. That is, years cannot include future tax years (as taxes must have actually been overpaid to be assigned). Valid assignments will therefore cover previous tax years, the current year will only be assignable for an in-year repayment claim
• The wording of the assignment must not include any statements around agreement to terms and conditions or fees
• Terms and conditions/fees can appear in the combined document but must appear separate to the assignment, in its own section of the form, with its own signature. The wording of the assignment must be provided before the customers signature, it cannot appear in small print or after the customer's signature

No particular form of words is required for the assignment but it must specify the repayment that is being assigned. For example, 'The Income Tax repayment of £1,345.75 due to me for the year 2014-15' or 'Income Tax and Class 4 NIC overpaid by me for the two years ended 5 April 2015' are acceptable, but 'any repayment of tax due to me' is not.

If you consider that an assignment does not satisfy the above criteria, you should inform the taxpayer of this (or the agent if the assignment was submitted by the agent) using SEES letter OCA197 and explain why the assignment is not valid.

If the taxpayer has already nominated the same assignee in the normal way to receive the repayment, then you should proceed with the issue of the repayment to the nominee.

If you are not sure about the validity of an assignment, you should  submit your query by completing the Operational Excellence referral.

If a taxpayer has assigned a repayment due to them to a third party, the assignee will usually also be nominated on the return or claim form to receive repayment. Where the assignee is not the same as the nominee shown on the return or claim form or, the nomination section has not been completed, the relevant repayment must be issued to the assignee, as they are legally entitled to it.

What to do when you receive a letter of assignment

It is important that a letter of assignment is identified in the receiving office as soon as possible to ensure that the repayment assigned under the assignment is not issued to the claimant or another nominee in error. There should also be a check to see if an assignment already exists, since if an assignment is already in place, it must be revoked before the new assignment can be accepted.

If a taxpayer has assigned a repayment to a third party, the assignee will usually also be nominated on the return or claim form to receive repayment. Where the assignee is not the same as the nominee shown on the return or claim form, the nomination is superseded by the assignment and the relevant repayment must be issued to the assignee as they are legally entitled to it. Note: It is important that the guidance at SAM110132 is followed to note receipt of the letter of assignment, and to set the No Repayment signal appropriately.

Bankruptcy cases

Special rules apply to set-offs in bankruptcy cases (S131 FA2008) and mutuality of debt is crucial, but a repayment which has been legally assigned to a third party on or after 21 July 2008 is now secondary to set-off against outstanding HMRC debts. In effect, any repayment that is assigned can first be used for set-off against the taxpayer’s outstanding debts and then against any outstanding debts of the assignee, before any remaining amount is repaid to the assignee.

The taxpayer cannot assign a repayment which, under the Insolvency Act 1986, legally belongs to the trustee in bankruptcy. If you receive a letter of assignment which seeks to assign a repayment which legally belongs to the trustee, do not accept it. Return it to the taxpayer (or agent) and explain why the repayment cannot be assigned.