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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Contract Settlement: Post Settlement Issues - Reopening a Settlement: Early Settlement Of Instalment Offers

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

Taxpayers who have entered into an instalment arrangement and later find that they are able to pay off the balance, or can make substantial cash payment should be encouraged to do so.

If you are asked at the offer stage, you can tell the taxpayer that it is HMRC practice in such cases to allow a proportionate reduction of the addition made for the time granted, the precise calculation depending on the circumstances at the time.

  • If the taxpayer wants to know what amount would have to be paid to clear the liability, you should find out from the SAFE nominee what payments have been made and recalculate the addition for time granted.
  • Early settlement by lump sum means that the instalment offer will have been paid unevenly over its course (being effectively back-loaded). So you should re-calculate the addition for time granted using the more precise method, by reference to reducing balance, see EM6250.

Note: This is an example of a short cut re-calculation, where the offer was being paid by regular monthly instalments.

  • Once the re-calculated liability has been paid follow EM6415.
  • If the taxpayer wishes to make substantial cash payment short of paying off the full offer, then you should find out from the SAFE nominee what payments have been made and re-calculate both the addition for time granted and the dates for the remaining payments. When the reduced offer has been eventually paid, follow EM6415, and liaise with the SAFE nominee or, if you work in Local Compliance, the Centralised SAFE Team, to revise your charge.