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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement - Example 4

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 company had always submitted audited accounts.

On challenge it was admitted that business profits had been diverted to its directors and full co-operation was given in quantifying the omissions.

Capital reconciliation statements prepared by the accountant established that the profits had knowingly been understated over a continuous period of 20 years by a total of £200,000 by use of fictitious purchase invoices.

The enquiry started in June 2004 and was concluded in December 2006.

Disclosure - complete disclosure on challenge 20%
Co-operation - excellant throughout 40%
Seriousness - sizeable omissions over a long period involving fraud 10%
Total abatement     70%
Penalty loading     30%