Statement about the Withdrawal of the concessions ‘Equitable Liability’


In August 1995 the Inland Revenue published a Tax Bulletin article ‘Excessive assessments: equitable liability’ (TB18). The article explained the circumstances in which information received after the statutory deadlines had passed might be accepted as evidence that finalised tax liabilities were too high and a decision taken not to pursue recovery of the full amount assessed.


This concession was originally introduced to protect other creditors when the Inland Revenue’s claims in insolvency cases took precedence over the claims of other creditors. Where recovery proceedings concluded with the insolvency of the taxpayer, assessments based on estimated amounts that had not been appealed could sometimes result in unfairness. This is because in the past HM Revenue and Customs (HMRC) had ‘Crown preference’ for its debts meaning they ranked ahead of other creditors. ‘Equitable liability’ was introduced to avoid inflated claims from the former Inland Revenue unfairly reducing the money available to other creditors. Use of the concession was also extended to cases outside of insolvency where it was considered appropriate to do so.


Subsequent developments have eroded the justification for accepting time barred information after deadlines have passed:-


    • The introduction of Self Assessment in 1996 means that taxpayers presently have a 5 year (to be reduced to 3 years from April 2010) period both to file a return for any particular year and to displace a legal determination based on an estimated amount.


    • Prior to Self Assessment a taxpayer had only 30 days in which to appeal against an Inland Revenue estimated assessment.


    • In 2003 the Inland Revenue lost its preferential creditor status (Crown preference) so that tax no longer takes precedence over other creditors.





The House of Lords’ decision in the case of Regina v Commissioners of Inland Revenue ex parte Wilkinson made clear that HMRC’s administrative discretion to grant concessions was narrower than was previously supposed. In light of this, HMRC is reviewing all its published concessions. As part of this review, we have concluded that the practice of equitable liability does not fall within the discretionary power of HMRC.


Equitable liability has been identified as one of ten concessions that will be withdrawn from 1st April 2010. HMRC may, however, accept late returns or information affecting liability where the request for relief under this concession was made and accepted before this date in accordance with TB 18N.


There may be a small number of exceptional cases where HMRC can accept that there was a ‘reasonable excuse’ for not making the return or for not displacing the determination within the statutory time limits. In such cases HMRC will accept the late information and adjust the liability accordingly. HMRC will also continue to help taxpayers who have difficulty paying what they owe and in appropriate circumstances allow payment to be made over a period of time.


HMRC are in the process of contacting representative bodies who are known to have an interest in this concession to ensure that they are aware of the date for withdrawal. HMRC will also be discussing the impact of its withdrawal with interested parties over the coming months.


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