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HMRC internal manual

Enquiry Manual

Contract Settlements: Letters of Offer: Penalty-Only Offers

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

Contract settlements are a mutually-beneficial administrative convenience. They replace what we would otherwise do formally: a single exchange of letters instead of a raft of closure/amendment/assessment/determination notices.

There may be occasions when a combination of the two is the most cost-effective way to settle. For example, if any enquiry covers one year only it might be more convenient to

  • close and amend formally
  • let the SA system attend to the interest
  • cancel any SA surcharge on tax to which the penalty is geared - S59C(4) - and
  • make a contract settlement for the penalty only. Letter 12 

You should seek advice from Contact Link as necessary on the appropriate wording in less straightforward cases.