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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 give the extra 10 percent abatement referred to in EM6070 where

  • there is 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 will have the effect of covering part of the penalty loading remaining after the other two elements have been considered.

There will be occasions when, following a spontaneous disclosure, the extra 10 percent will, 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 disclosure is made after 5th September 2016.

A person who

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

will normally qualify for a 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’.