EM6103 - Contract Settlements: Surcharge: Interaction with Penalties
The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.
The detailed guidance on the subject of surcharge generally is to be found at EM4100+.
You cannot also impose surcharge on duties which are to be included in your calculation of tax geared penalties, EM4103. So if the penalty chargeable is likely to be less than the surcharge plus any interest that has accrued on it, you do have the option of omitting that duty from the amount on which your penalties are calculated. If you do this, then the surcharge and related interest can be included in your settlement figures.
Example
Culpable duty on which surcharge has already been imposed £5,000
| Surcharge imposed on that figure - | 5% x £5,000 | £250 |
| 5% x £5,000 | £250 | |
| Interest accrued to date on that surcharge | £30 | |
| Total surcharge and interest | £530 | |
| Proposed abated penalty 10% x £5,000 | £500 |
In this situation you could exclude the penalty from your calculations and include instead the surcharge and related interest.
You can include either
- the penalty, or
- the surcharge plus interest,
but not both. The same principle applies to any tax geared penalties which you are seeking to impose by determination. In this situation, the surcharge will need to be formally discharged and any payments already made against it credited to the taxpayer’s next statement of account. These would then be available for set-off against the earliest arrears.
For guidance on the interaction of surcharge and
TMA70/S59C(4)