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HMRC internal manual

Enquiry Manual

Contract Settlements: Letters of Offer: Detail - Exclusions

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

To avoid any dispute later you should

  • exclude by a specific clause unpaid duties for a period within the enquiry which are not included in the settlement.

This could include Employment Income underpayments or unpaid tax on other sources of income (but see EM6249 on the advisability, in instalment cases, of sweeping up all outstanding liabilities).

It can happen with an Employment Income source that the tax unpaid on the self assessment was agreed to be coded out, before the enquiry was opened.

There is no need to disturb the coding arrangement if the enquiry gives rise to a contract offer. The offer can include the words:

‘ ….. hereby offer ….. £y, of which £x is being collected through my PAYE code, leaving £z to be paid within …..’.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)