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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: settlement discussions

As you approach the settlement stage, see COG915030, you will need to tell the employer, contractor, or their agent about

  • the additional tax and NIC you believe is due for the years you intend to include in your settlement, and
  • any interest and penalties.

When explaining your figures to the employer, contractor, or agent, whether in writing or in person, you must make it clear that they are without prejudice and do not constitute an offer of settlement. You should take extra care where you are corresponding directly with the employer or contractor.

‘Without prejudice’ means that anything you discuss with the intention of reaching an agreement cannot be referred to in any subsequent appeals.

Where there is any doubt about the basis of your discussions you should explain that a final position can only be reached when either

  • HMRC enters into a binding contract settlement with that taxpayer by accepting their letter of offer, or 
  • the taxpayer accepts HMRC’s decision notices by not appealing against them, or 
  • any appeals are determined by a tribunal or the courts and further appeal rights are exhausted, or 
  • agreement is reached under S54 Taxes Management Act 1970.

If the employer, contractor, or agent claims that any letter in which you explain your figures or any subsequent settlement proposals that you make, effectively constitute an offer to settle, you must immediately issue a disclaimer and seek advice from contact link.

You should normally try to reach agreement about the tax and NIC before considering any penalties. When there has been a loss of tax/interest and penalties have been incurred, you should explain to the taxpayer that it is our normal practice to establish the level of any penalties and include these in the amount of the settlement.

If an agreed settlement cannot be reached, you may need to take formal action to determine the appropriate

  • tax and NIC
  • interest
  • penalties.

Use the Contract Settlement Form (CSF) to control the settlement figures, see COG915095.

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