EM6418 - Contract Settlement: Post Settlement Issues - Reopening a Settlement: Defaulting Taxpayer

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

If the customer tells you that they are unable to pay the agreed settlement, there are two possible approaches.

1. Most cases - a Debt Management matter

Unless the exceptional situation at 2 below applies, the customer’s inability to pay is a recovery problem. Provided the payments have been set up properly on SAFE/ETMP, notification of the debt will be passed automatically to the Contract Settlements Unit who will decide how to proceed. The Contracts Settlement Unit will not rework the contract.

2. Exceptionally - rework the instalments

The customer may state they are unable to pay the agreed instalments under the agreed settlement because of a change in their circumstances. Exceptionally, you may revise the original instalment offer, for example to spread the instalments over a longer period. Before you can do this you must

  • make a report to Contact Link for advice on the acceptability of a new arrangement and the wording of any fresh offer. Ensure sufficient information is provided regarding the customers’ inability to pay the current instalment arrangement. In addition also provide detailed information about the customers’ projected means position, covering the proposed revised instalment period requested. Although HMRC have already entered a contract with the customer, the guidance at EM6214, EM6215 and EM6216 is still of relevance in showing the level of detail required
  • unless the taxpayer makes their approach to you immediately after the acceptance of the original offer, there will be additional interest to take into account and they may already have paid some instalment payments. Your report should therefore, include your computation of the revised offer on a fresh form 94
  • unless the customer contacts you immediately after the acceptance of the original offer, additional interest may be due as a result of requesting a longer instalment period and they may have already paid some instalment payments. Your report must include a computation of the revised offer on a new form 94
  • request Debt Management suspend recovery action while the proposals are considered and ask the SAFE nominee to stand over the charge.

If the customer cannot make any acceptable proposals for settlement it is a recovery problem, so follow the guidance at 1 above.