Concluded contract settlements stand without statutory relief right

HMRC officers handling direct-tax disputes start from non-adjustmentGOV. Once a customer has entered into a legally binding contract settlement, HMRC is not obliged to make any adjustment to the agreed figuresGOV, and an officer must not agree to revisit a settlement on general grounds or simply because the calculation of a liability included in it is subsequently questionedGOV. The contract-settlement rules at EM6000+ cover direct tax onlyGOV: VAT and VAT penalties must never be included in a contract settlementGOV.

That starting position sits alongside a non-disadvantage principle. Customers who settled by contract must not be disadvantaged because they settled by contract rather than through HMRC proceeding formallyGOV. But where a contract settlement conclusively determines the position, there is no contractual basis for varying the agreement merely to enable the customer to make a claim for relief or obtain some other reduction in the agreed liabilityGOV.

The exception is a statutory entitlement arising after settlementGOV. Where, following conclusion of a contract settlement, the customer has a statutory right to claim relief, that statutory entitlement may provide a basis for HMRC to revisit the position notwithstanding the concluded settlementGOV. The worked example is overpayment relief: a claim to overpayment relief may be dealt with either by contract or through a formal claim by the taxpayer, and paragraph 8 of Schedule 1AB to the Taxes Management Act 1970 provides for overpayment relief claims following a contract settlementGOV, with the operational detail at SACM12060. That claims-manual page confirms the claim must be made by the person liable to pay under the contract settlement, even where someone else's tax liability was covered by the agreementGOV, and it modifies the standard exclusion cases accordingly — Cases B and C do not apply unless the claimant (rather than the taxpayer) has other formal means of recovery, while Cases D, E and F apply whether the appeal or proceedings concerned the taxpayer or the claimant.

Overpayment relief is only one form of relief. There may be cases where, had HMRC proceeded formally, the taxpayer would have had access to a statutory remedy, but that remedy is unavailable because the liability was settled as a contractual debtGOV. In those circumstances the settlement itself should not be disturbedGOV; instead, consideration may be given to whether a discretionary ex gratia payment is appropriateGOV. Officers are directed to contact TALA through the contact link both where the overpayment-relief replacement Letter of Offer template is needed and where the ex gratia route is in play.

The decision test in every case is the validity of the relief claim, not the settlement methodGOV. Officers must focus on whether the claim would otherwise be valid and satisfy the relevant statutory conditionsGOV. Relief must not be given where the claim is outside the relevant statutory time limit, fails the applicable conditions, or would not have been available had HMRC proceeded formallyGOV — a claim is allowed only where all conditions for the relief are satisfied apart from the fact the liability was settled by contractGOV. For time-limit purposes, liabilities that could have been assessed formally but were included in the settlement are treated as if the assessments had been issued on the date the offer was accepted.

Refusals must be explained in writing to the taxpayer. Where HMRC's decision not to allow relief carries no right of appeal, regardless of the settlement method, the taxpayer may be able to seek Judicial Review.

Legal basis: Enquiry Manual EM6413 with Taxes Management Act 1970 Schedule 1AB paragraph 8 (and Finance Act 1998 Schedule 18 paragraph 51G) and Self Assessment Claims Manual SACM12060.