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HMRC internal manual

Enquiry Manual

From
HM Revenue & Customs
Updated
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Contract Settlements: Penalties: Abatement - Example 1

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.

Smith, an employee, makes SA returns which include income from property of £2,000 a year.

On enquiry he confirmed that his returns were complete but later admitted that he had an interest bearing bank account.

On further challenge he admitted that in the previous four years concealed rental income had been paid into the account.

In that period rental income had been understated by approximately 50 percent and interest averaging £200 each year had been omitted.

The enquiry started in June 2004 and finished in May 2005.

Abatements      
       
Disclosure - initial denial followed by piecemeal disclosure 5%
Co-operation - information provided when requested but bank account originally concealed 35%
Seriousness - although the omitted rents are relatively large in proportion to the correct income, the total omissions are not large in absolute terms and the period is short. 30%
Total abatement     70%
Penalty loading     30%