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HMRC internal manual

Specialist Investigations Operational Guidance

HM Revenue & Customs
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Settlement by agreement: global offers

The opportunity to agree a global offer has been withdrawn with immediate effect as such settlements are incompatible with the terms of the Litigation and Settlement Strategy.

A global offer was one where it was contended by HMRC that an amount of tax (or duties) was owed for a period covering more than one assessing period. A single amount, comprising tax (or duties), interest and penalties was agreed with the taxpayer to cover the whole period. There was no attempt to try and allocate tax (or duties) to specific return periods and calculate interest and penalties along usual lines. Often there was no agreement as to what the tax or duty represented.

This usually covered the situation where HMRC knew that tax was owing but did not know the amount or possibly even the source and were genuinely unable to find out. Where a taxpayer was willing to make an offer in settlement, which was accepted, this was a ‘global settlement’.

What is not a global offer

Means – restricted settlements

see EM6200+

Culpability not accepted settlements

see EM6212

Various possible outcomes, not agreed

Occasionally, due to the situation there may be several possible ways to assess for tax. Where a taxpayer is willing to offer an amount which is equal to what HMRC may reasonably expect from litigation (including interest and penalties), this can be accepted as a normal offer.

Uncertainty about who is liable

An offer in settlement which meets HMRC’s own calculations for tax, interest and penalties can be accepted as a normal offer.

It is imperative that, where HMRC contend that tax or duties are payable and recoverable, the tax or duties are allocated to defined assessable periods which (if assessments were issued and appealed) could then be defended at Tribunal and beyond. Any other treatment, not sanctioned by legislation (e.g. legislation which allows directions by or on behalf of the Director of the Asset Recovery Agency  to issue assessments for undefined periods) is no longer permitted.

Whilst it is preferable that the actual source is identified or agreed with the taxpayer, it is not necessary to specifically identify the source. So, if the source is considered to be from trade, profession or vocation, it is permissible to note the source in assessments as ‘other income’ and for gains ‘other gains’. Further advice on how to categorise the assessable amounts can be obtained from your team leader.

A significant problem with global settlements was that the underlying amounts could not be defended at Tribunal. The settlements made no mention of periods, amounts, interest or penalties which could be reasonably taken to a Tribunal or defended in the context of the existing legislation. This then brought into question whether HMRC had given ‘valuable consideration’ which is a pre-requisite for a contract to be legal.

Whilst taxpayers appeared content to agree them and settle the investigation on the terms agreed, the agreements could not be defended because of this flaw. Neither did they afford the taxpayer the opportunity of defending any underlying potential assessments before a Tribunal.

Refusal to co-operate by the taxpayer should not be used as a reason to abandon the investigation.

It is generally possible to agree with the taxpayer what head of duty will be used to assess the receipts in dispute (as they may be unwilling to argue the head of duty(ies) applicable before a Tribunal), or you should be able to issue assessments on what you suspect the source correctly is, which, if appealed, it is the taxpayer’s responsibility to show is incorrect.

Where it is possible to agree or form an opinion as to what the source is, assessments may be issued to reflect the actual (or calculated) receipts per assessing period. Statutory interest will then flow automatically from these assessments. Penalties should be determined in the usual way.

In accordance with normal guidance, it may be expedient to agree a formal settlement contract. However, the terms of any contract should include the amounts in which any assessment(s) would be made, and interest and penalties should be calculated and included separately.

Where agreement of the head of duty proves impossible, assessments for relevant periods should be issued in accordance with usual guidelines:

  • Determinations should be made where there is no return and no notice to file a return can be issued.
  • Discovery assessments or jeopardy amendments should be made where returns have been received.

Taking action as above preserves the taxpayer’s rights to appeal.

Due to the nature of these cases, it is likely that very few assessments will be appealed.

This is because the taxpayer is required to demonstrate that the assessment(s) is(are) incorrect or excessive to the civil standard of proof (i.e. on the balance of probabilities) and if sufficient evidence can be shown of having given the taxpayer the opportunity to determine the applicable head of duty or demonstrate that a different amount of tax or no tax is due, a Tribunal is likely to dismiss the taxpayer’s appeal, on the basis that HMRC gave due and reasonable consideration as to what the source is and the amount of tax due.

All usual methods of progressing the enquiry should be used, including information notices and classifying the investigation under Code 8 or Code 9.

When issuing assessments or determinations, it is imperative that taxpayers are kept informed of their rights of appeal and that the explanation is recorded properly in the investigation papers.

Interest and penalties (where applicable) should be calculated in accordance with the usual guidelines. Where penalty assessments are contemplated, their issue should be discussed with the taxpayer, where practicable, in the context of agreeing a contract settlement, and not delayed if agreement proves difficult. Again, issuing such assessments preserves the taxpayer’s right of appeal against all elements of the resolution.

Interest is non-negotiable as it is not included in the Commissioner’s powers of Collection and Management (s5 CRCA 2005). Penalties, whilst negotiable, should include the usual legislative considerations.

Years or taxes/duties for which an assessment cannot be issued should not be included in an enforceable contract settlement. If a taxpayer is willing to make voluntary restitution for out of date years or un-assessable taxes/duties, consideration should be given to the usual voluntary restitution rules or a separate voluntary settlement should be negotiated to preserve the enforceability of the contract settlement.