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HMRC internal manual

Enquiry Manual

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 liabilities specified in the statement of duties. These should be set out in a table as shown in the examples in EMapp1.

For pre SA years the table should include

  • all the duties for years under appeal, giving credit for any amounts paid in the text of the letter of offer, and
  • for discovery years, the additional duties, but nothing else.

If the correspondence relating to the settlement does not make it clear what duties are to be included, you should specify these in the statement.

For SA years

  • there is no need to distinguish between income tax and capital gains tax
  • tax and Class 4 NIC can be shown as one combined figure

for discovery years, the tax/NIC to be included in the table, is the amount of the additional duties that would have been shown in a discovery assessment

  • if there is no additional liabilities for a specific year within a multi-year settlement there is no need to include anything in the table for that specific year.

Irrecoverable Tax

Where the offer includes any tax that cannot be assessed because we are out of time, and this is being offered voluntarily EM3980, the amount of the voluntary payment

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

When an employer voluntarily includes employees PAYE liabilities, follow the guidance in COG900000 for Class 6 Settlements.