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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Contract Settlements: Settlement Meeting: Establishing Culpability

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

In general, tax and NIC and penalties for back years can only be claimed if there has been fraud or negligence or deliberate or careless behaviour for penalties under FA07/SCH24 or FA08/SCH41. An important part of the settlement meeting involves you establishing culpability generally and the consequences.

You can establish culpability by explaining briefly to the taxpayer the facts which support your view. If neither the agent nor the taxpayer denies the charge it may be taken as established. The discussion of culpability must be recorded in the note of meeting and identified in any EMapp2 report.

Once you have established culpability, you can explain its effect on the recoverability of tax, NIC, interest and penalties.

You may not accept an offer unless you have established the appropriate degree of culpability on which the settlement depends.