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HMRC internal manual

Compliance Handbook

Charging penalties: contract settlement: agreement with the taxpayer

Once your manager has

  • authorised your penalty decisions on the PDAC
  • authorised any legacy penalties
  • approved your proposal to settle by contract and
  • approved the expected offer

you should arrange a settlement discussion with the taxpayer.

Before or during the discussion you should give the taxpayer a written explanation of your penalty decisions and calculations. This will normally be an NPPS100 Penalty Explanation Letter, including an NPPS100(S) Penalty Explanation Schedule.

In deliberate cases this must include the implications of deliberate behaviour; that is inclusion in the Managing Serious Defaulters programme, see CH480000, and Publishing Details of Deliberate Defaulters, see CH480700.

In cases involving a suspended penalty the suspension conditions are set out in the NPPS100(S). It is important that this is issued because the letter of offer you must use refers to the letter specifying the conditions of suspension.

You should deal with any issues arising from your penalty decisions by following the guidance at CH280000.

Where a penalty is to be suspended, you will also need to get the taxpayer’s agreement to the suspension period and conditions. Without agreement you cannot issue a letter of offer that includes a suspended penalty.

When agreement has been reached you should give the taxpayer a draft letter of offer.

Where the Contract Settlement Form (CSF) is going to be stored electronically, you should save and finalise your draft letter of offer in Caseflow/CRMM Case Document Store as ‘Draft letter of offer’. The document classification should be ‘Offer and Certificate’.

If you subsequently seek a revised offer, the revised letter of offer should be saved and finalised in Caseflow/CRMM Case Document Store and must be named ‘Revised letter of offer’. The revised amounts will need to be recorded on a CSF and approved by your manager, see CH411150.

This will make sure a complete audit trail is available should the case be presented to a court or tribunal.

Example letters of offer, including wording about suspended penalties, for individuals, companies and partnerships are in the Enquiry Manual at EMapp1. For Employer Compliance, there are example letters in the Compliance Operational Guidance for

  • individual and sole trader employers, see COG914585 
  • partnership employers, see COG914620 and
  • company employers, see COG914675.

You can adapt these examples to the circumstances of your case.

In deliberate cases

  • the letter of offer must always acknowledge the taxpayer’s default and
  • under no circumstances should the wording in the letter of offer be varied, see EM6338.

See CH411125 for further guidance on offers including suspended penalties.