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Equitable liability has been identified as one of ten concessions that will be withdrawn from 1 April 2010.
It was introduced in the '90s to protect other creditors when the then Inland Revenue's claims in insolvency cases took precedence over the claims of other creditors: i.e. it had Crown preference.
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.
Use of the concession was also extended to cases outside insolvency where it was considered appropriate to do so.
HMRC say, however, that subsequent developments have eroded the justification for accepting time-barred information after deadlines have passed:
- Under self assessment taxpayers have a five-year period both to file a return for any particular year and to displace a legal determination based on an estimated amount (to be reduced to three years from April 2010).
- Prior to self assessment a taxpayer had only 30 days in which to appeal against an estimated assessment.
- In 2003 the Revenue lost its preferential creditor status so that tax no longer takes precedence over other creditors.
HMRC say that they 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 the article Excessive assessments: the practice known as equitable liability from the August 1995 edition of the Tax Bulletin.
There may be a small number of exceptional cases where the Revenue 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, the department will accept the late information and adjust the liability accordingly. It 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.
According to the charity TaxAid, ‘the impact of these changes on vulnerable clients could be significant.
'Many taxpayers get into arrears with their tax affairs following some significant family or health event, the outworking of which can take some time.
'Keeping up to date with tax affairs during this period is often overlooked, resulting in estimated tax bills at a time when earnings and financial resources are low.'
Comments about the planned withdrawal of the concession should be made to HMRC’s Bob Horwill: 020 7147 2447.
