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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
, see all updates

Penalties: formal assessments and determinations: discussions with the taxpayer: when to take formal action

HMRC’s longstanding and very practical preference is for penalties for direct taxes to be included in an agreed contract settlement.

Throughout the enquiry, you must engage positively with the taxpayer to try to reach agreement over the additional amounts of tax and penalties that are due. It is important to ensure that the taxpayer is aware of

  • their rights and safeguards
  • the information powers available to HMRC, and
  • the basis of our settlement proposals.

Experience shows that an agreed settlement is more likely to be paid promptly.

At any stage during an enquiry, discussions can break down or a taxpayer may withdraw their co-operation for a variety of reasons. The primary objective under these circumstances is to try to encourage the taxpayer into resuming meaningful discussions and to eliminate delay. If written and telephone contact with the taxpayer or agent fails, there may be no alternative but to proceed formally including closing enquiries, making discovery assessments and so on. Before you embark on this course of action, you should ensure that you have maximised the use of the information powers available to HMRC, see CH20100+.

EM5207a explains what to do before commencing formal action.

EM5207b explains the steps you must then take when you cannot reach agreement.