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HMRC internal manual

Enquiry Manual

Contract settlements: letters of offer: detail - default or failure

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 current standard forms of offer all include an acknowledgement of failure to meet obligations, usually on the part of the person(s) signing the offer. Earlier versions referred to default.

The specimen letters refer to the Taxes Acts. The letter of offer could however cover Tax Credits, Student Loans and so on, in which case the letter should be adapted to read ‘the relevant Acts and Regulations’.

If the offer is being made by someone who has not committed of an offence under the Taxes Acts, the wording should reflect this. An example is an offer to be signed by the personal representatives or executor of a deceased taxpayer. As they have committed no offence, the offer must reflect this.

For example, it could refer to ‘the failure of XYZ deceased to meet all his/her obligations’.

Similarly the wording will need to be adapted where a letter is to be signed by an agent on behalf of a client, see EM6350.

There may however be circumstances where it is the executor or executors, rather than the deceased taxpayer, who have failed to meet their obligations. In these circumstances the letter of offer should have adapted to reflect this.

For example, it could refer to ‘my (our) failure as the Executor (or Executors) of the Estate of Mr X deceased, to meet all my (our) obligations’.

A taxpayer may be prepared to make the offer expected of them, but may refuse to sign an admission of failure. In such a case, if the penalty does not relate to a deliberate failure or inaccuracy, the wording can be changed to ‘my alleged failure’. The wording of the offer must not be changed if the penalty in the offer relates to a deliberate failure or inaccuracy by the taxpayer, whether or not the case meets the criteria for publication of details of deliberate defaulters (PDDD), see CH190300+.

If the taxpayer does not agree our view that the failure or inaccuracy was deliberate you should take formal proceedings for the tax, interest and penalties. This will give the taxpayer the opportunity to challenge our view at tribunal.