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HMRC internal manual

Enquiry Manual

Contract Settlement: Post Settlement Issues - Reopening a Settlement: Adjusting Figures

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

Where a taxpayer has entered into a legal contract which is binding, we are not obliged to make any adjustments to the underlying figures.

It would however be incorrect to apply this in a way that places a cooperative taxpayer at a disadvantage over an un-cooperative one. For example, we may have to settle an enquiry into the return of an un-cooperated taxpayer using formal action at every stage. Because we have settled by assessment, they are entitled, within the relevant time limits, to all the relieving provisions in the Taxes Acts. This is in contrast to a cooperative taxpayer who has settled by contract.

We must therefore make sure that a taxpayer who has settled by contract is not disadvantaged and has the benefit of any adjustment that they could have claimed if the liability had been dealt with by assessment. In these circumstances you must consider re-opening the settlement.

The most common claims of this type are to loss relief (especially under ITA07/S72) and CTA10/S458 relief. You may also get claims to relief that were previously overlooked, or for FA09/Sch 52 overpayment relief adjustments.

You must only allow these claims when all the requisite conditions are satisfied (other than having settled by contract), and they comply with all of the relevant time limits.

Any assessments that were made but never finally determined should be regarded as determined on the date of acceptance of the offer. Time limits for assessing liabilities that could have been assessed formally but were included in the settlement should be applied as if assessments were issued on the date the offer was accepted.

You must not accept any attempts to re-open a settlement on

  • general grounds, or
  • the grounds that

    • a lower rate or gross profit could have been justified, or
    • the personal expenditure included in a capital statement was excessive.

However, the two grounds mentioned above about gross profit and personal expenditure can be acceptable if the incorrect figures were supplied by the taxpayer and could have formed the basis for a successful FA09/Sch 52 claim.

If you cannot accept the application to re-open a settlement, you must send a letter to the taxpayer explaining the reasons, unless the claim relates to a settlement by Specialist Investigations. In that case you must refer the claim to the relevant SI office.