EM6301 - Contract Settlements: Letters of Offer: Importance of Correctness

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

To be effective an enquiry settlement must result in a legally binding and enforceable contract between

• the customer and
• HMRC.

A new liability under the law of contract replaces the previously existing and separate liabilities to tax/NICs, interest and penalties imposed by the Taxes Acts.

The contract comes into existence when a letter of offer

• signed by or on behalf of the customer
• is accepted by or on behalf of HMRC.

CIR v Nutall (63TC148) gave judicial approval to our long-standing practice of reaching and enforcing contract settlements with customers in respect of tax, interest and penalties. The principle in that case was extended by the Court of Appeal in CIR v Woollen (an Order 14 appeal - see below - not reported) by providing that a properly constituted contract displaces the three elements in it and takes on an identity of its own when it comes to the collection of the composite debt.

You must ensure that the wording of the letters of offer and acceptance are accurate, seemingly small errors can have major consequences on

• legal action if payment is not made and
• the use of a shortened procedure (except in Scotland) known as Order 14 proceedings.

In these cases, even if the customer attends the hearing, judgement is normally given in favour of HMRC because the validity of the contract cannot be refuted. Collection can then proceed.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)(This content has been withheld because of exemptions in the Freedom of Information Act 2000)(This content has been withheld because of exemptions in the Freedom of Information Act 2000)