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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Contract Settlements: Settlement Meeting: General

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

All open points will normally have been cleared and the disclosure certificate obtained before the settlement meeting is arranged.

Even at this late stage in an enquiry new information may emerge that may give you reason to suspect fraud or deliberate evasion. Under these circumstances you should terminate the meeting and submit the case to the Evasion Referral Team (ERT).

After clearing any remaining open points, normally you will

  • briefly review the history of the enquiry, mentioning in particular any matter, whether for or against the taxpayer, which you have taken into account in abating the penalties
  • confirm agreement of figures of tax, NIC and interest and explain how any liabilities not included in the settlement will be collected
  • establish the required degree of culpability EM6383 
  • explain the maximum penalty (unless you think this unnecessary), remind the taxpayer of our abatement practice, as set out in factsheet CC/FS15 - Self Assessment and old penalty rules, and general information factsheet CC/FS1 (a or c), and ask whether there are any relevant factors which you have not already mentioned. (You must be prepared to listen and to revise your penalty loading accordingly.)
  • if your enquiry covers periods to which the penalties in FA07/SCH24, see CH80000+, or FA08/SCH41 see CH70000+, or FA09/SCH55 see CH60000, apply, explain the maximum penalty, remind the taxpayer of the way in which the maximum can be reduced as set out in the penalty factsheets

    • CC/FS7a for inaccuracies
    • CC/FS7b for under-assessments
    • CC/FS11 for failure to notify
    • CC/FS18 (a and b), for late filing, and
    • CC/FS19 for old employer and contractor penalties.

    and ask whether there are any relevant which you have not already mentioned (You must be prepared to listen and revise the penalty reduction accordingly)

  • adjust the level of penalty, if necessary. You can indicate the level of penalty which you, by reference to the official guidance and your own experience, consider appropriate
  • then invite the taxpayer to make an offer.

If the case must be submitted to the Authorising Officer for acceptance, you must explain to the taxpayer that any offer must be submitted for consideration on behalf of the Commissioners for HM Revenue & Customs and that acceptance or rejection rests there.

You must avoid giving any indication that you are firmly committed to any particular figure, or that you are prepared to `recommend’ an offer for acceptance. The Authorising Officer must be left with a completely free hand to consider an offer on its merits, without having to make apparent any internal difference of opinion.

Unless the taxpayer promptly accepts your advice you will probably have to justify your view of the appropriate penalty loading (by reference to the published criteria in the factsheets). You will normally be able to point out that your suggested figure represents a substantial reduction of the maximum penalties under the Taxes Acts for which formal action could be taken.

You should be firm in your opinion of the amount expected and will need convincing arguments to make you change your view. Nevertheless, you should not give the impression that you are dictating an amount which is the only possible acceptable offer. The offer must be freely negotiated and you must have demonstrated your readiness to listen to the taxpayer’s contentions and give them due weight.

If the taxpayer refuses to make an offer (as they are entitled to do) you must explain to them again our powers to assess, charge interest and make penalty determinations (subject to their right of appeal).

You should cover future conduct EM6390.