EM6414 | Contract Settlement: Post Settlement Issues : Early Settlement Of Instalment Offers

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

Customers who have agreed to pay by instalment arrangements, and subsequently find they can pay off the balance or make a substantial cash payment, should be encouraged to do so.

If you are asked at the offer stage, you can tell the customer that HMRC will allow a proportionate reduction of the addition made for the time granted, the precise calculation depending on the circumstances at the time

• If the customer wants to know what amount would have to be paid to clear the liability, you should find out from the SAFE nominee what payments have been made and recalculate the addition for time granted.

• Early settlement by lump sum means that the instalment offer will have been paid unevenly over its course (being effectively backloaded). So you should re-calculate the addition for time granted using the more precise method, by reference to reducing balance, see EM6250.

• Once the re-calculated liability has been paid follow EM6415.

• If the customer wishes to make substantial cash payment short of paying off the full offer, then you should contact the SAFE nominee to confirm what payments have been made and re-calculate the addition for time granted and the dates for the remaining payments. When the reduced offer has been eventually paid, follow EM6415, and liaise with the SAFE nominee or, if you work in ISBC, the Centralised SAFE Team, to revise your charge.

To enable the early settlement of an instalment arrangement please contact TALA through the contact link and enclose the original letter of offer and letter of acceptance in your submission.