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HMRC internal manual

Enquiry Manual

Contract Settlements: Letters of Offer: Detail - Amounts paid and set off

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 letter of offer should

  • set out the gross amount of the offer, and
  • show separately

    • any amounts to be deducted, and
    • any balance still to be paid.

The amounts to be deducted will normally be

  • amounts paid against assessments that are included in the settlement
  • general payments on account held in SAFE, and exceptionally
  • amounts available for set off from overpaid assessments etc outside the scope of the settlement where the taxpayer has agreed to the set off. Normally these amounts should have been transferred to SAFE before an offer is made and then treated in the same way as any other payments on account.

Before you issue the appropriate SAFE contract stencil to the SAFE nominee or, if you work in Local Compliance, the Centralised SAFE team, you must confirm that the relevant payments and any set-offs are still held in SAFE or in the appropriate Head of Duty system.

When discussing the settlement terms leave the amount of the offer and the time for payment blank unless, exceptionally, the taxpayer has already agreed these in discussions. The taxpayer needs to complete these when making the offer. It is important that the taxpayer understands that they are making us an offer based on our calculations, see EM5207.

You should normally only include reference to a repayment being set off where exceptionally

  • there is a repayment due for a period not covered by the settlement and it has not been possible to transfer this to SAFE as a payment on account before the offer is made, and
  • the taxpayer has agreed to have the repayments set off against the settlement.

Wherever possible any repayments or set offs outside the scope of the settlement should be processed and transferred to SAFE as a payment on account before you agree the settlement terms. In these circumstances the letter of offer should not make any reference to any repayments or set offs.

The wording of the letter of offer where a repayment is being set off should be based on the following example

“…… offer the sum of £…………


less £x which I have already paid

and less £y which is to be satisfied by a repayment of income tax, with supplement, which is due to me in respect of the year ended 05 April zzzz and which I agree is to be set off here.


The balance of £………… will be paid within …… days of the date of your letter accepting this offer”.

You must make sure that the amounts you have deducted are correct and that they are correctly allocated against the settlement. Any excessive deductions included in the contract could prove extremely difficult to recover subsequently, and any amounts incorrectly allocated could be repaid in error.

In Part 3 of the form 94, or on the Contract Settlement Form you must distinguish between

  • payments allocated by DMB to specific assessments included in the settlement (as shown in the Statement of Duties)
  • payments held as general payments on account of the settlement, and
  • repayments/set-offs from assessments outside the scope of the settlement.

Where a Certificate of Tax Deposit is to be tendered in settlement, or part settlement, the certificate should be mentioned in the letter of offer EM6025.