Interest: Interest Review Unit (IRU): Miscellaneous taxes and duties: Contract Settlements
When a Contract Settlement is agreed, an appropriate HMRC officer will determine the due date for payment. The due date (usually agreed before the letter of offer is completed) can be
- 30 days after the date HMRC issued the letter accepting the offer;
- a different date given by HMRC;
- a date mutually agreed between the taxpayer and HMRC; or
- a series of dates representing an agreed instalment plan for settling the charge.
The customer, in making the offer, is entering into a binding contract (that is completed by the HMRC letter of acceptance) to pay the agreed amount on or before the date(s) given. So there can be very few circumstances where HMRC can be responsible for the tax being paid late and interest charged.
Interest should be upheld unless there is clear evidence of our error or unreasonable delay (see DMBM405010) in handling the settlement. Events before the contract settlement due date are not relevant and should not be taken into account. (Where an objection is made to the interest included in a settlement, the local office should pass the matter to CP-TAP).
When sending the letter of acceptance we tell the customer
- We accept the offer on the basis set out in the offer
- The methods of payment open to them
- The exact date(s) the payment should be made by
- It is the customer’s responsibility to ensure payment is made by that/those date(s)
- There is no need to wait for a payslip and how to pay in the absence of one
See Enquiry Manual EM6410 for examples of the exact wording of the letters of acceptance.
The issue of payslips is a courtesy afforded to help a customer to make payment and not a legal requirement. If payment is delayed because the payslip was sent late or not sent at all then any interest should be maintained. The customer should have still paid on time.
Circumstances that may give reason for consideration would be where
- the letter accepting the offer and giving the due date(s) was not sent, sent late or sent but not received, stopping the taxpayer paying on time.
Set aside the interest for the identified period of unreasonable delay (see DMBM405010).
Instalment arrangement cases
There are occasions where the settlement contract allows the customer to pay the settlement by a series of instalments. Each instalment will have a given due date for payment and the customer will be allowed 14 days from the due date of the instalment to pay. There is nothing within the contract that allows interest to be charged for those 14 days. This means that we can only charge interest on the amount of that instalment from the 15th day until the payment is made.
If the customer defaults on the arrangement the recovery office should write to the customer to tell them this and that the arrangement is cancelled, with payment of the whole outstanding balance being due immediately. We can then charge interest from 15 days after the relevant instalment date, on the whole balance outstanding. But this would mean that ‘forward’ interest (interest already included in the settlement to take account of the payment by instalments) would have to be recalculated and the excess offset against the interest now being charged, to give a net amount owed by the customer. In this case, contact the relevant local office for advice.
If default is not recognised and the customer is not asked for full payment, and payments by instalment continue to be accepted, HMRC will be seen to be continuing the instalment arrangement and the normal rules for instalment arrangement cases continue to apply.
If the customer pays an instalment after being told about the default, the customer should be told that the payment has been accepted as a payment on account of the outstanding balance, not as an instalment. If this is not done, then the normal rules for instalment arrangement cases continue to apply.