Contract Settlements: Penalties: HMRC's Policy on Abatement
The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.
This guidance does not apply to penalties for inaccuracies in returns or other documents with a filing date on or after 1 April 2009 where the return or document relates to a tax period beginning on or after 1 April 2008. Refer to the Compliance Handbook at CH82000+ for help with these penalties.
The tax geared penalties are expressed as sums not exceeding ascertainable amounts. The Board’s policy in arriving at a pecuniary settlement is to reduce the maximum statutory penalties
- to an appropriate percentage of the culpable tax recoverable by assessments
- for all years which are not time-barred for penalty action.
Your authority for penalty abatement comes from TMA70/S100(1) which says that an authorised officer of the Board making a penalty determination may set it at such amount as, in his opinion, is correct or appropriate.
To arrive at the correct or appropriate amount, you must consider
- the offences for which penalty proceedings could be taken
- the maximum amount of the penalties for those offences (the ‘statutory cover’)
- the factors affecting abatement, whether they are for or against the taxpayer including factors put forward by the taxpayer in person or on his behalf, and
- the amount of the culpable tax and NIC to be used in the calculation of the appropriate penalty.