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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement- Co-operation

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.

A considered evaluation of the degree of co-operation is called for.

The abatement you give should reflect the extent to which the taxpayer has

  • been prepared to co-operate throughout the enquiry, and
  • thus help bring it to a speedy and accurate conclusion.

The time taken to reach a settlement, in so far as it has been influenced by the actions of the taxpayer or his agent, will therefore be the starting point for your consideration of abatement.

It should be recognised that

  • it will inevitably take longer to settle a taxpayer’s affairs where they are more than ordinarily complicated, and
  • the length of the enquiry period is often influenced as much by the enquiry officer as by the taxpayer.

It is not practical to lay down any fixed time limit to govern abatement. Age, health, absence or general complexity may have to be taken into account.

You should compare

  • the time that could have been taken and that which has actually elapsed
  • the co-operation which might have been expected and that which has been given.

Against this background, you should bear in mind the presence in the case (or the absence from it) of the following features.

* General delay, prevarication and procrastination.
* Concealment of assets, piecemeal disclosures, and truthfulness.
* Willingness to attend meetings.
* Number of occasions formal information powers used.
* Necessity for making discovery assessments or jeopardy amendments or closure notices.
* Persistence in uncorroborated stories of gifts, cash hoards, betting wins etc.
* Necessity to have the liabilities determined by the tribunal.
* Irregularities continuing during the course of the enquiry.
* Payments on account.

A genuine disagreement over the interpretation of a set of facts or the statute is not a lack of co-operation. Neither is an appeal for assistance from a third party, including the local MP or seeking a closure notice.

However a different view would be taken if there is a deliberate policy of obstruction, accompanied by clear evidence of attempts to mislead those authorities as well as HMRC.

At the end of the day you have to decide where the particular case falls on a scale ranging from full and complete co-operation to out-and-out obstruction, and fix the abatement accordingly.

Any delay or lack of co-operation by the agent is deemed to be the responsibility of the taxpayer. Your normal means of combating delay should be the use of the information powers, which inevitably involves notification to the taxpayer.

But if, nevertheless, a case is lagging because of the apparent tardiness of the accountant, or the accountant complains that the client will not provide the information, you should

  • write directly to the client (with a copy to the agent)
  • remind him of the terms of leaflet IR160, and
  • request quicker and more effective co-operation.

If an objection is made, the answer should be that HMRC is bound, in fairness to both the taxpayer concerned and to other taxpayers, to remind the taxpayer of the effect that delay may have upon the amount of any interest and penalty which may ultimately be sought.