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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: letter of offer: contract settlements: suspended penalties

The guidance about contract settlements at COG914500+ and EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

In certain circumstances, see CH405050, it is possible to include one or more suspended penalties in a contract settlement.

A series of draft letters of offer, which are to be used where payment of all or part of the penalty is suspended, are in COG914500 and EMapp1. An amount equal to the suspended penalty is a separate instalment within the terms of the offer. If more than one suspended penalty is to be included in the offer a separate instalment has to be included for each one.

The instalment for the suspended penalty makes reference to ‘a letter dated aa/bb/cccc from an officer of Revenue and Customs’. That letter is the one in which the agreed period of suspension and suspension conditions were set out.

Whether you are able to use a contract settlement to include a suspended penalty depends on the length of the contract and the suspension period (see CH411125).