Monday, November 16, 2009

Equitable liability to become a statutory right

One of the challenges of writing this blog is that I'm unable to cover all areas of tax policy. One development that I chose not to address earlier this year concerns the concept of equitable liability.

What is it? It's a concession that can be applied by HMRC such that a taxpayer need only pay what is fair and reasonable despite legally owing much more than this. Thus, in certain tightly defined circumstances HMRC will, by concession, accept that only an ‘equitable liability’ be settled rather than the full amount of income tax or corporation tax that is legally due from a taxpayer. In agreeing an 'equitable liability' HMRC normally accept the evidence of time-barred returns, accounts, claims etc where there is a tax debt but no longer any legal right to adjust the liability. The amount of the legal liability is not actually amended, but HMRC will not pursue the difference between the original liability and the revised amount.

In May 2009 HMRC announced that they intended to withdraw this concession. Numerous representations were made in an effort to persuade HMRC and the Government that this was a bad decision. Taxation magazine published hard hitting arguments to this effect by Barrister Keith Gordon and by editor Mike Truman. The ICAEW Tax Faculty and the CIOT also made the point strongly.

I'm delighted to confirm that the protestations have been heard and that legislation is to be introduced such that the concept of equitable liability will become a statutory right. Earlier today I received a press release stating that the Government have told the CIOT that they will be legislating “at the earliest opportunity” to retain the practice.

Why am I now making reference to the issue? Partly it's a public admission that I should have addressed this earlier in the year. My mistake. It's also an opportunity to note that some campaigns are worthwhile and can effect revisions to decisions that appear to be fixed in stone. That's what has occurred on this occasion. I would expect however that the turnaround has occurred because of patient diplomacy by the professional bodies and the heavyweight articles in professional publications.

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