What is offsetting?

Definition of offsetting

Offsetting is the act of balancing money that you’re owed with money that you owe.

If HMRC explicitly says you’re allowed to, you might be able to offset taxes you owe them with tax rebates they owe you.

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Another example of offsetting may occur when a contact is both a supplier and a customer. In this situation they may issue you with an invoice and you may issue them with an invoice. Rather than each of you fully paying the other’s invoice, it makes sense that only one party in this arrangement should make a payment for the difference of the two invoices.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.