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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement - Extra Abatement for Disclosure

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 now only give the extra 10 percent abatement referred to in EM6070 in exceptional circumstances.

If you believe that the extra 10 percent may be due, you should seek advice from TALA, see Contact Link, after reading the guidance below. 

Historically, the extra 10% was only given where

  • there was spontaneous and complete disclosure, and
  • the taxpayer has no reason to fear early discovery.

It is important to note that this extra abatement is 10% or nothing, there are no half measures with this.

This extra 10 percent can have the effect of covering part of the penalty loading remaining after the other two elements have been considered.

There will be occasions when the extra 10 percent can, with full co-operation, reduce the penalty loading to nil.

The extra 10 percent abatement will not be due in the following circumstances

  • where an SA enquiry has been opened, since the taxpayer cannot be said to have no fear of early discovery
  • where a person has taken a significant period to correct their non-compliance in relation to either an onshore or offshore matter, or they would previously have been able to make a disclosure through one of HMRC’s offshore disclosure facilities. A ‘significant period‘ is normally considered to be over 3 years but may be less where the overall disclosure covers a longer period.

If you think this may apply to your case, the extra 10% must not be given and you should also consider further restricting the abatement for disclosure, see EM6070.

A person who

  • has failed to complete returns or provide accounts, and
  • has incurred penalties under TMA70/S93(5)

will normally qualify for a maximum 10 or 20 percent abatement for disclosure on their submission.

The additional 10 percent will not be due. Since a return has been served, it cannot normally be said that the person has ‘no reason to fear early discovery’.