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KEY POINTS
- What is the delay in making an announcement?
- The practice of voluntary restitution.
- Sign the petition now.
- Write to your MP now.
Often there is a need in tax for careful consultation, and HMRC get criticised for not having consulted enough.
But in other cases there really is no need for consultation at all. Something is clearly wrong, and all that is needed is a statement that it will be put right.
Equitable liability is one of those cases. I apologise for repeating myself, but if HMRC have issued determinations of liability amounting to say £20,000 which have become final, and the taxpayer, having admittedly failed to get a grip on his tax affairs until now, shows to the complete satisfaction of HMRC that the true liability was only £2,000, then there simply are no circumstances in which HMRC should continue to demand £20,000 in tax even if it is legally due.
By all means add the interest and appropriate penalties to the liability, but it cannot be right to continue to demand an amount which HMRC know should not be due.
Voluntary restitution
The only argument HMRC could put forward would be that the full liability was due according to the law, and that taxpayers insist on using loopholes in the law to their own benefit, so it is only reasonable for HMRC to do the same.
Leaving aside the question of whether that logic holds water when the two groups of taxpayers concerned are not the same, the argument would only be valid if HMRC always accepted that tax not legally due should not be demanded.
Quite apart from the stated policy of HMRC to make things difficult for tax avoiders, there is also the little-known policy of inviting voluntary restitution.
This was mentioned briefly in an article several years ago by Paul Aplin, called 'We Are Not Bulldozers'.
At the end of a case where an Inspector from Special Compliance Office had been startlingly unprofessional, the Revenue was left collecting tax which might well have been lower than the true liability because it had agreed a low figure for cost of stock. So presumably it just accepted that there was nothing that could be done?
Not at all. It raised the prospect of voluntary restitution. This is a practice which can still be found in the manuals, particularly at EM3980.
This rehearses the possibility that an investigation may end with tax lost but no ability to collect it: for example, because a taxpayer had submitted a correct return at the proper time but HMRC had not acted on it. The manual goes on to say:
‘In such circumstances the expected offer cannot include these duties, or related interest and penalties. Nevertheless, it is considered that HMRC is justified in inviting voluntary restitution on equitable grounds.’
Not only that, but it is clear that such restitution is made more than once in a blue moon, because HMRC have gone to the trouble of drawing up an appropriate letter that can be used by inspectors to record the making and acceptance of such an offer.
Most striking of all is the reference to ‘equitable grounds’. Of course, it is fair for such a provision to be in the manuals, and in HMRC’s armoury, when they also are prepared to offer a reduction of tax on equitable grounds, but strangely we heard no suggestion that voluntary restitution was to be abolished at the same time as equitable liability.
Surely if HMRC’s powers do not extend to remitting tax on equitable grounds, they also should not extend to asking for tax on equitable grounds either?
If equitable liability is to be abolished, then voluntary restitution should be too: no draft letter for inspectors to use, instead a firm instruction that inspectors have no power to agree to such payments, and that if one is received it must be sent back to the taxpayer.
Why wait?
I am aware that there are consultations continuing on equitable liability. Cooler heads might counsel a bit of patience; wheels are turning and no doubt something will be said in due course, probably around the time of the pre-Budget report.
There are several problems with that approach. First, as usual we have no idea when the PBR is going to be. If it is going to be in the middle of October, all well and good. But if it is not going to be until the end of November or beginning of December, then that leaves a short amount of time to deal with any problems in the proposed solution, to be handled at a time when many other issues will be on the table, and in the frenetic atmosphere of an impending general election.
This is an issue which can and should be decided before that.
Second, it means that any campaigning to change the proposed solution will have to be carried out in the busiest time of the tax adviser’s year, the run up to the 31 January deadline.
Assuming that the election will make an early Budget likely, there will be very few weeks between the end of January and the Budget speech, and most of the contents will have been finalised before any campaign can get going.
And third, to return to my main point yet again, what is the problem in saying that the basic principles of equitable liability are going to be retained? It is understandable that the furore over the proposal to abolish an obscure relief caught HMRC on the hop.
What is far less excusable is that, several months and many explanations on, there is still no confirmation that the mistake is going to be rectified.
Understandably these things need ministerial involvement, but we happen at the moment to have a Financial Secretary to the Treasury, Stephen Timms, who takes a moral view of his portfolio. In a recent speech he said this about tax avoidance:
‘It is right for those who pay their fair share to resent – to see, in fact, as morally wrong – the actions of a small minority, who use their resources to create a new set of rules for themselves. Who think they can pay tax on a “do it yourself” basis to rob public services of vital resources.’
With the caveat that he gave earlier in the speech that there are areas of legitimate uncertainty about how tax applies to certain transactions, and with the further one which I would add that, when confronted with two ways of reasonably structuring a transaction, taxpayers are entitled to take the one which results in the lower tax bill, I agree with that.
However, if it is morally wrong for taxpayers not to pay their fair share, it must surely be morally wrong for HMRC to demand more than their fair share. All that equitable liability says (and the clue is in the name…) is that the statutory liability to should be reduced to a fair one.
Time to campaign
So it’s time to start pressing harder for a statement on equitable liability. I want to ask all our readers to do two things.
First, if you have not already done so, please sign the e-petition that was set up by Keith Gordon calling for equitable liability to be retained. You can find it on the Number 10 site. It simply calls for ‘the HMRC practice of equitable liability to be retained’.
The explanatory material explains that the proposal to abolish it ‘will expose many of the country’s most vulnerable taxpayers to debts that they cannot afford and do not actually owe’, and says that ‘HMRC should not aim to collect more than the right amount of tax’.
You sign by ticking a box and giving your e-mail and physical address. We have used this site before, and all the information is kept private. The email address is used only to tell you about what is happening on the petition, you do not get spam from it and your address (either electronic or physical) cannot be seen by others.
When you sign, your name does not appear immediately, instead you get an email asking you to confirm that it is you who has signed. Clicking on the link is what adds your name to the list, so don’t forget to do it.
The second thing that I would ask you to do is to write to your MP. It’s a good time to do this, as they will all be coming back to Westminster at the beginning of next week, so your letter can be waiting in their in-tray when they arrive.
You can only write to ‘your’ MP, but it should be acceptable to write to both the MP who covers your home and the one who covers your office, if the two are different.
I am not going to give you a sample letter to use, because letters which are identical don’t create the same impact.
But you should briefly explain what equitable liability is – the writing off of tax debts that are legally due when the taxpayer can show that the real figure was less.
You should explain that this has been happening successfully for many years with no obvious problems. Although the Wilkinson case raised doubts about the power of HMRC to continue the practice, many professionals say they do have the right to do so, and in any case there is an established procedure for giving them the right to.
I would suggest that you concentrate on the plain unfairness of allowing HMRC to collect amounts which bear no relationship to the true amount of tax due, and stress the moral responsibility to tax fairly.
Act now
Above all, do it now. If you look on Keith’s petition for my name, it is embarrassingly recent. That’s not because I had any doubts about it, it’s just that whenever I thought about it I said to myself ‘I really must do that in a moment’ and then promptly forgot about it.
Do it now. Signing the petition is going to take no more than a few minutes, writing the letter is going to take half an hour, so do them now. I will even give you permission not to read the rest of the magazine first, good though it is.
It is more important to get this issue into the minds and onto the desks of our legislators. Because they are so anxious to have your vote next year, they will undoubtedly pass the letter on to the Treasury for a response – and responses to MPs are normally at least approved by ministers.
The more letters go in, the more often ministers will be asked to approve some anodyne response about looking at the issue.
We would like to see those responses, so please keep us informed, but the real purpose of the letters is to get ministers asking their civil servants for solutions to this potential PR disaster.
If we don’t get a satisfactory statement soon, there will be more campaigning to follow.
