Contract settlements: expected offer: instalments - example 1
The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.
A cash offer of £10,000, with £5,250 paid on account, would have an addition for time granted based on the unpaid £4,750. If the current statutory interest rate is 11% and monthly payments are to be spread over 3 years, the addition is
£4,750 @ 12% for 3/2 years = £855
The expected offer becomes £10,855 with £5,605 to pay. Since this cannot be divided into 36 equal instalments, it might be convenient to suggest a first instalment of £180, followed by 35 instalments of £155 each.
The instalments could be expressed in the letter of offer as follows
|£5,250||Already paid on account|
|£180||To be paid within 30 days of the date of the letter notifying acceptance of this offer by you|
|£5,425||To be paid by 35 monthly instalments of £155 each, on or before the last day of each succeeding month, the first such instalment to be paid on or before the last day of the month next following that in which the instalment of £180 becomes due,|
until the whole of the £10,855 has been paid.’