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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: voluntary restitution

There will be occasions where arrears are identified as part of a compliance check but are not legally enforceable. This is most likely to be the case with arrears of

  • NICs that have become time barred due to the constraints of the Limitations Act
  • PAYE/CIS deductions that are not within the time limits for recovery, see COG915215, and if protective action has not been taken, see COG915165 or COG909400 
  • Tax due on employee benefits and expenses where the employer has agreed a voluntary settlement but tax due is not within the time limits for recovery and it has not been established that the employee was careless in the completion of SA returns and protective assessments have not been issued to the employee.

In these circumstances you cannot include the arrears in a contract settlement, take formal recovery action or consider penalties. However, if the employer is willing to pay any of the arrears (with or without the interest thereon) voluntarily, they may be included in a Class 6 settlement.

Where you identify arrears that are not legally enforceable you should

  • explain to the employer that although the Department cannot take legal action to recover the arrears due, and interest thereon, you would invite the employer to make voluntary restitution.

If the employer agrees you should

  • obtain completion of a voluntary restitution letter (Word 29KB) 
  • issue the EC31 letter, available in SEES Forms and Letters, confirming receipt of the offer 
  • include the arrears and interest in a Class 6 settlement.

Where a settlement combines voluntary restitution with a contract settlement the paperwork must not be combined. The voluntary restitution letter may be issued with the appropriate letter of offer and the confirmation letter may be issued with the letter of acceptance, but they must remain separate pieces of correspondence.

Note: There should be no inclusion of any time barred NIC or related interest or penalties in the letter of offer. To do so and to issue a letter of acceptance will render the offer unenforceable (COG914515 - Importance of Correctness).

The confirmation of receipt letter must be signed by the Authorising Officer.