Why it is important to understand the difference between contract settlement and deed.
In response to the Covid-19 crisis the government has announced measures that give businesses a helping hand when it comes to managing their tax affairs.
One of those measures is 'The Time to Pay arrangement' which gives businesses additional breathing space during which to settle their existing HMRC liabilities, something that could be invaluable in the current climate.
It is important to understand the difference between contract settlement and deed. Members should be aware that the drafting, preparation, amending, inserting of any additional terms, execution and signing of a deed which relates to the settling of an individual’s liabilities to tax and interest fall within the statutory definition of a ‘reserved legal activity’ and should not be carried on by any member unless they are specifically authorised to do so or are exempt under the terms of the Legal Services Act 2007 (‘the Act’).
However, most direct tax enquiries are concluded formally, or by contract settlement where amounts of tax, interest and penalties are agreed and it is administratively more convenient for both the taxpayer and HMRC to settle those cases by the use of a contract settlement, not a deed.
However, in some cases HMRC has proposed executing deeds rather than contracts when reaching settlements in respect of certain tax arrangements. The cases seem to be mainly tax ‘avoidance’ cases or cases involving complex multi-lateral elements, such as groups (of companies) and employee benefit trusts.
Members should be aware of the difference between a contract settlement and a deed.
Please note that simply providing advice to a client as to the taxation consequences or implications of entering into a settlement by way of a deed, which has been prepared by HMRC, would be outside of the definition of a reserved legal activity.
In some cases it may not always be clear whether the documentation provided by HMRC is in the form of a legal deed, or whether it is simply a contractual agreement. If there is any doubt about whether a member is entitled to carry out certain work, it is recommended that the member contact technical advisory services for further support.
it makes it clear on its face that it is intended to be a deed by the person making it or, as the case may be, by the parties to it (whether by describing itself as a deed or expressing itself to be executed or signed as a deed or otherwise); and
it is validly executed as a deed by that person or, as the case may be, one or more of those parties.
HMRC will often indicate if a deed is being used, but it might not alert the agent that the preparation of a deed is a reserved activity. Things that an adviser should look for are:
Description: It is reasonable to expect a deed to be entitled a ‘Deed’ although this is not conclusive.
Statement: A deed must state that it is ‘executed as a deed’ or ‘signed as a deed’, or other words to that effect, and should contain (usually at the end) spaces for the signature of the representative of each party in addition to the name, address, occupation and signature of the person witnessing each signature.
Further guidance including example of 'deeds' for individuals and companies are included in HMRC Practice guide 8 - Execution of deeds
ACCA members are not authorised to carry on a reserved legal activity unless they are also members of the Law Society or the Bar. An exemption is provided if a member carries on the reserved activity at the direction and under the supervision of an authorised person who is an employer, manager or fellow employee. An example would be a member working in-house at a law firm. In this example, the tax adviser could lawfully prepare a deed if they are instructed and supervised by one of the authorised lawyers in the firm.
It is a criminal offence to carry on a reserved activity when not authorised to do so. Conviction for such an offence could lead to a fine or a prison sentence or both.