CH140310 | Interest: contract settlements involving direct taxes

You must check whether, and from which date, the FA 2009 interest rules apply to the tax or duty you are dealing with. See CH140160 for full details.

A contract settlement is an administratively convenient way of finalising a compliance check that involves direct tax.

At the end of the compliance check we agree the amounts of tax that we could assess, the interest that we could charge on those assessments and any penalties that are chargeable under the Taxes Acts. We may agree to enter into a contract to collect these amounts. Under the contract HMRC gives up the right to charge the tax, interest and penalty covered by the contract.

When the contract is made the amount the person has to pay is no longer due ‘under or by virtue of an enactment’. It is an amount due under the contract. Consequently, if any part of the sum specified in the contract is paid later than agreed

• the interest provisions of FA2009 do not apply, but

• the interest provisions written into the contract do apply.

See EM6000+ for more information on contract settlements.

If a person claims that excessive HMRC delay has caused or contributed to the interest charge, HMRC caseworkers should seek advice from the Specialist Technical team, see EM21000.

A reduction in the interest charge can only be considered in a contract where the circumstances are in accordance with the guidance at DMBM405010.