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HMRC internal manual

Enquiry Manual

Contract settlements: expected offer: instalments - arrangements

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

When the expected instalment offer

  • is less than £5,000 or
  • would produce monthly instalments of less than £100 each

You must settle the case by the formal route, see EM6238, and not by instalments.

When discussing an instalment offer you should encourage the taxpayer to make as large a down payment as they can reasonably afford.

Experience suggests that a taxpayer who makes a material down payment is more likely to complete the arrangement.

On the other hand, if the taxpayer has had to borrow the down payment, you will have to take the repayments on that loan into account when deciding the size of the subsequent instalments that the taxpayer can afford.

During the discussions you should

  • discuss an agreed instalment offer in the same way as any other offer
  • make sure the proposed instalments are within the taxpayer’s ability to pay,
  • bear in mind

    • their normal living expenses
    • their tax and NIC liabilities that will arise during the instalment period, and
    • that payments may need to be spread over a longer period (increasing the forward interest for the time granted).

You must not ask the taxpayer to enter into an arrangement if a review of their income, expenditure, assets and liabilities indicates that it is to be beyond their means EM6214 because this could invalidate the contract.

If they are able and willing to enter in to an instalment offer you should take account of any reasonable long term commitments (life assurance premiums and personal pension contributions) entered into before the enquiry began, when considering what instalments can be met.

Instalment period exceeding 3 years

Before you invite the taxpayer to enter into an instalment arrangement lasting more than 3 years the appropriate manager should approve this means of settlement, see EM6402.

Instalment period exceeding 5 years (exceptional cases)

HMRC’s policy is not to bind taxpayers to a contract that would involve severe hardship over long periods. It is therefore not normally desirable to commit a taxpayer to payments extending over more than five years.

However, we consider that a taxpayer should not escape the consequences of their behaviour by

  • the dissipation of their concealed income, or
  • the investment of it in non-realisable assets.

There may therefore be exceptional cases where a longer instalment arrangement would be justified.

If you have such a case you should seek advice from contact link as soon as it becomes apparent an offer cannot be met within the five year period.

See EM6402 for authorisation levels for acceptance of instalment offers.