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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: penalties: how to conduct the settlement meeting?

It is important to remember that a contract settlement is just that: a legally binding contract governed by the same law as, say, buying or selling a house.

To create a valid, enforceable contract all parties must be fully aware of all the relevant facts, understand the process, and enter into it willingly.

A penalty settlement meeting should be conducted along the following lines. The manager or experienced caseworker will

  • briefly recap the history of the case and the inaccuracies found
  • confirm the agreed figures of liability and interest
  • identify the culpable tax, NICs and so on
  • state the maximum penalty
  • remind the employer or contractor of the details of HMRC’s practice, as set out in factsheets CC/FS7a and CC/FS19
  • indicate the level of penalty which is considered appropriate by reference to HMRC’s guidance
  • ask whether there are any mitigating factors which have not already been mentioned
  • be prepared to listen and consider revision of the penalty loading
  • invite the employer or contractor to make an offer

    • where necessary suggest the ‘expected’ figure
    • be firm in their opinion of the ‘expected offer’
    • need convincing argument to change that view and
    • remember the offer must not be dictated to the employer or contractor
  • help with wording a suitable letter by providing a draft.

Where the offer cannot be accepted locally (COG914570), the manager or experienced caseworker should

  • explain that any offer will be submitted to the Local Compliance Authorising Officer (LCAO) for consideration on behalf of the Board
  • explain acceptance or otherwise rests with the LCAO and
  • avoid any indication that the LCAO

    • is committed to a particular figure or
    • any offer will be ‘recommended’ for acceptance.

Failure to cover all of the points could lead to an allegation of unfair treatment under the Human Rights Act 1998.