Withdrawal of extra-statutory concessions – Equitable Liability

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13 July 2009


In August 1995 the Inland Revenue, published a Tax Bulletin article entitled "Excessive Assessments: Equitable Liability" in which they explained that where an assessment had been made which a taxpayer disputed, and all available remedies had been exhausted by the taxpayer, the Revenue may, depending on the circumstances of the case, be prepared not to pursue its legal right to recovery for the full amount of tax assessed and legally due where it would be unconscionable to do so. This practice became known as 'Equitable Liability'.

When this concession was introduced, the Inland Revenue had Crown preference for its debts. The aim of the concession was to protect other creditors when the Inland Revenue's claims in insolvency took precedence over these other claims. Latterly use of the concession was also extended to cases outside of insolvency where it was considered appropriate to do so.

The concession was essentially applied where an assessment had been finalised and subsequently, information had become available which showed that the finalised tax liability was too high. In such circumstances, the submission of such information would have been time barred but for the application of the concession. The Revenue indicated that they would be prepared to consider applying Equitable Liability where it was clearly demonstrated that:

  • the liability assessed was greater than the amount which would have been charged had the returns, and necessary supporting documentation, been submitted at the proper time
  • acceptable evidence was provided of what the correct liability should have been.

Why is it being removed?

The House of Lords decision in the case of R v Commissioners of Inland Revenue ex parte Wilkinson made it clear that HMRC's administrative discretion to grant concessions was narrower than was previously supposed and as a result of this, HMRC has been carrying out a review of all its published concessions with a view to withdrawing them where appropriate.

In addition to this, since its introduction in 1995, 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 in 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 is Crown preference so that tax no longer takes preference over other creditors.

For these reasons, it has been decided to withdraw equitable liability with effect from 1 April 2010.

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