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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Contract Settlements: Letters of Offer: Detail - Duties Included

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

The HMRC agreement not to take any further proceedings must be in relation to specified liabilities. These should be set out in tabular form as in the specimens in EMapp1.

For pre SA years it is suggested that you include

  • all the duties for years under appeal with amounts paid shown in the text of the letter of offer, and
  • only the additional duties for discovery years.

If the correspondence does not make it clear the statement of duties should identify the source included if

  • the taxpayer has more than one source of directly assessable income for any year within the settlement, and
  • not all the sources have been investigated.

For SA years it is suggested that

  • there is no need to distinguish between income tax and capital gains tax
  • tax and Class 4 NIC can be stated in one combined figure
  • for open enquiry years the tax/NIC to be listed is normally the figure at box 18.3 of the return, that is after crediting tax paid at source, but before deducting payments on account
  • for discovery years, the tax/NIC to be listed is the amount of the additional duties
  • if the original self assessment was fully paid at the right time there is no objection to only the additional duties being included, even for an open enquiry.

Irrecoverable Tax

Where the offer includes any irrecoverable tax, with or without interest, which is being offered voluntarily EM3980, the amount so included

  • should be distinguished in the letter of offer, and
  • reference should be made to the voluntary inclusion of this sum in the offer.

Where an employer has voluntarily agreed to meet employees’ Schedule E liabilities these amounts should be distinguished ECH21625.