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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Contract Settlements: Penalties: Abatement - Example 3

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.

Panayi has been in business for 30 years. He had submitted detailed self employed pages including balance sheet information with his SA returns, and before that certified accounts. On enquiry in 2001 he denied irregularities and was obstructive throughout the enquiry.

It was eventually necessary to get the liability determined by the Appeal Commissioners (it would now be decided by the tribunal), who found that the profits had been understated for each of the previous ten years.

Returned profits had averaged £50,000 per annum and the omitted profits £3,000 per annum.

The enquiry was completed in 2006.

Abatements      
       
Disclosure -   nil
Co-operation -   nil
Seriousness - the omitted profits were not large in relation to the profits returned. 30%
Total abatement     30%
Penalty loading     70%