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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement - Example 5

The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

Singh was served with his SA return on 6 April 2002 but despite the fixed penalties did not submit his return until 1 November 2004.

The return showed a chargeable gain of £100,000 and income on which PAYE had been operated. The return was captured and surcharge triggered and paid (TMA70/S59C)

The enquiry officer considered the penalty arising under TMA70/S93(5).

Disclosure - Complete 20%
Co-operation - Excellent 40%
Seriousness - Large but single isolated gain 30%
Total abatement   90%
Penalty loading   10%

With a late return, it is neither appropriate to give the 10% bonus for spontaneous disclosure EM6071 nor, normally, to restrict the 20% abatement - incomplete disclosure is almost certainly a TMA70/S95 or FA07/SCH24/Para1 offence.


Factors to take into account for co-operation include any forcing action taken to obtain the return, any indication of deliberately withholding the return, and payment of the tax due.


Abatement for seriousness will normally fall in the range of 20% to 35%, the former covering the situation when returns are repeatedly and deliberately sent in late. The latter a single year with small amounts of duties involved.


TMA70/S59C(4) prevents the imposition of surcharge on any part of the tax on which tax geared penalties are taken, EM4103. In practice in this example a contract settlement need not be sought - you should simply leave the surcharge in place.