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HMRC internal manual

Enquiry Manual

Contract settlements: Deeds

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

What is a Deed?

A Deed is a form of legally binding agreement that has been signed by all the parties to that agreement and witnessed.

A Deed must make it clear that it is intended to be a Deed. This will mean that it will contain specific wording confirming that the document is intended to be a Deed and signed as such.

Settlements made through a Deed are of equal status to settlements made through a simple contract and vice-versa. The advantage of using a Deed is that they can be used in some limited circumstances where it is not possible to settle though a simple contract.  There are additional formalities for entering into a Deed over a simple contract, such as the need for a Deed to be witnessed.   

Importantly however, the drafting, amendment or preparation of a Deed falls within the definition of a ‘reserved legal activity’ under the Legal Services Act 2007. This means that where a taxpayer wishes to employ an agent to draft, prepare or amend a Deed, this work must be carried out by a qualified lawyer, who is regulated by an approved regulator. An accountant or financial advisor will not normally be able to do this work.  It is however the responsibility of the agent acting on behalf of the taxpayer to satisfy themselves that they are able to comply with the Legal Services Act 2007.

You must therefore always seek advice from TALA (This content has been withheld because of exemptions in the Freedom of Information Act 2000) before you enter into discussions about the wording of a Deed. TALA may then make a referral to Solicitor’s Office (SOLS).

Please Note that the law relating to the use of Deeds in Scotland is different to other parts of the UK and this guidance on Deeds has no applicability to settlements reached in Scotland. For practical purposes this means settlements with taxpayers that are either resident or are based in Scotland.

If you need advice on a settlement in Scotland, that is not a standard contract, contact the Office of the Advocate General for advice.

When should I consider the use of a Deed?

Normally there are only a limited number of circumstances when you should consider using a Deed. These are

  • when there is uncertainty about whether the consideration, see EM6336, is adequate to form a binding contract
  • where one or more parties to a multi-party contract are not able to offer adequate consideration
  • when having more than 6 years (up to a maximum of 12 years for a Deed) in which to enforce any breach of contract will be a relevant factor
  • when the taxpayer insists on the use of a Deed.

There is however often some confusion about the specific circumstances when these might apply.

Historically, HMRC decided that settlements that were made under the settlement opportunities that were announced by HM Government for some participants in certain Avoidance Schemes would all be settled through a Deed. Now these historical opportunities have ended, each case should be considered on its own merits. For further guidance about what to consider in Partnership Avoidance Cases see The Settling Individual Partners Tool.  (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Sometimes a taxpayer, normally a large business, will insist on settling through a Deed because of specific legal advice they have received. When this is the case, you should seek advice from TALA, (This content has been withheld because of exemptions in the Freedom of Information Act 2000) as it may be that a referral will need to be made to SOLS.

Where a taxpayer only wants to settle through a Deed because they wish to modify or add to the clauses in the standard letters of offer, then you should seek advice from TALA who can provide advice on the wording of a bespoke letter of offer, which in many cases will be an acceptable alternative to settling through a Deed.

Where a settlement has been reached using a Deed any variation of that Deed must be done by Deed. Under these circumstances you should contact SOLS for advice.