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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement - Duties to be Included

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.

You should apply the penalty loading to the tax and NIC lost as a result of

  • failure, or
  • fraudulent or negligent conduct

provided that

  • the time limit for making a penalty determination has not expired.

The time limits are set out at EM5000+.

Non-culpable duties

As regards unpaid tax or NIC that is not attributable to default you should

  • include it in your settlement if it relates to the year(s) covered by the enquiry
  • exclude it from your settlement normally if it relates to a non-enquiry year. It should remain on the SA statement for normal recovery action. When discussing payment of the contract settlement you should ensure the taxpayer understands and has taken account of the unpaid liabilities outside of the contract offer EM6249.

Care should be taken to exclude non-culpable tax or NIC from the penalty computations.

You should

  • not postpone normal collection procedures simply because an enquiry is in place, and
  • encourage the taxpayer to keep to the annual cycle of SA payments.