EM6212 - Contract settlements: expected offer: culpability disputed

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

Taxpayer claims there is no culpability

The taxpayer may claim that

  • they had a reasonable excuse for their failures, see EM5152 or
  • where the return is for a period beginning on or after 1 April 2008 and the filing date is on or after 1 April 2009, their incorrect returns or accounts were not submitted deliberately or carelessly CH81100+, or
  • For earlier periods their incorrect returns or accounts were not submitted fraudulently or negligently EM5180.

You must consider any such claim on its merits.

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Taxpayer claims that culpability is overstated

Where the taxpayer admits the offence but considers that you have overstated the degree of culpability you will have to

  • discuss your respective contentions with the taxpayer or his agent and
  • try to reach agreement.

You should make sure the taxpayer is aware, from the penalty factsheets, what criteria are considered, and the relative weight attached to each.

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Authorisation of offer

An offer which exceeds the tax, NIC and interest necessarily includes a measure of penalty. If you

  • consider the offer to be inadequate but
  • have tried and cannot secure any improvement

you will need to seek authority to accept the offer from the appropriate Authorising Officer.

For authorisation levels for

  • Local Compliance see EM6402a
  • National Teams, high Net Worth Unit, see EM6402b
  • penalties under Schedule 24 FA07 and {#}
  • Schedule 41 FA08, see CH407050. {#}

You must send your report and recommendations to the appropriate Authorising Officer together with the enquiry papers.

If there are exceptional circumstances which make it advisable to accept an offer without charging penalties, see EM5213, you will need to explain these reasons to the Authorising Officer.

Normally, however, you should explain to the taxpayer that your instructions require you in such cases to

  • establish firm liabilities to tax, NIC and interest and
  • then make a careful overall review of the case so that the possibility of formal penalty action can be considered EM5200+.