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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement: Example 2

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 where the failure to notify occurs on or after 1 April 2010. Refer to the guidance at CH70000+ for details of the penalty that applies to those failures.

Ms Jones, who started in business in 1992, failed to give notice of chargeability until challenged in 2004.

She immediately admitted the offence and instructed an accountant to act for her.

Co-operation was reasonably good, but there were some delays which were alleged to be the fault of her accountant.

The business profits were substantial, ranging from £15,000 in 1993 to £40,000 in 2004.

It was clear that Ms Jones knew that she should be paying tax, but did nothing about it.

The enquiry started in April 2004 and finished in December 2006.

Disclosure - full disclosure on challenge 20%
Co-operation - good, subject to delays 30%
Seriousness - the offence was serious, particularly in later years 20%
Total abatement   70%
Penalty loading   30%

If the disclosure had been entirely voluntary and complete before challenge Ms Jones would have qualified for an extra abatement of 10% for disclosure EM6071 leaving a net penalty loading of 20%.


For years up to and including 1987/88 there was a fixed penalty for failure to notify chargeability. The time limit for determining such penalties has long passed and Ms Jones will be liable for penalties for years 1988/89 onwards only. [TMA70/S103(4)].