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A client of mine faced a similar situation to Robert Ainsworth's client. However I raised the issue before the Bankruptcy registrar and maintained setoff applied as both were arms of HM Government. Not surprisingly the Inland Revenue (as it was then) objected but fortunately the Bankruptcy registrar had sympathy with my client's predicament. He adjourned the case so the position could be explored more fully, and after stiff negotiations the Revenue backed down and withdrew the petition.
Don't concede anything if faced with a similar situation. HMRC do not like appeals or threats to refer a matter to the Revenue adjudicator or the Parliamentary Commissioner.

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