EM6308 | Contract Settlements: Letters of Offer: Default Interest Clause

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

The standard letters of offer in EMAPP1 include a clause which states that interest is payable if the full amount, or the instalments, to be paid under the contract are not paid by the due date(s).

This is an offer by the taxpayer to pay interest at a specified rate. This is not statutory interest because there is no legislation that sets the rate of interest for contract settlements. The taxpayer is offering to pay interest at the rate we charge under s86 TMA70. This rate is regularly updated in line with other statutory interest rates. Because the interest is not statutory there is no requirement for the letter of offer to refer to the legislation that determines the rate of interest for a specific tax, for example Corporation Tax.