EM6052 | Contract Settlements: Penalties: HMRC's Policy on Abatement

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

This guidance does not apply to penalties for inaccuracies in returns or other documents with a filing date on or after 1 April 2009 where the return or document relates to a tax period beginning on or after 1 April 2008. Refer to the Compliance Handbook at CH82000+ for help with these penalties.

Tax geared penalties are expressed as sums not exceeding ascertainable amounts. HMRC’s policy for agreeing settlement is to reduce the maximum statutory penalties

• to an appropriate percentage of the culpable tax recoverable by assessments

• for all years which are not time-barred for penalty action.

The relevant legislation is TMA70/S100(1) which says that an authorised officer of the Board making a penalty determination may set it at such amount as, in his opinion, is correct or appropriate.

To arrive at the correct or appropriate amount, you must consider

• the offences for which penalty proceedings could be taken

• the maximum amount of the penalties for those offences (the ‘statutory cover’)

• the factors affecting abatement, whether they are for or against the taxpayer including factors put forward by the taxpayer in person or on his behalf, and

• the amount of the culpable tax and NIC to be used in the calculation of the appropriate penalty.

TMA70/S100(1)