Removal of tax waiver to hit self-employed

Self-employed people hit by illness or bereavement are among the losers of an incoming move to scrap a practice that allows excessive tax demands to be scaled back.



Accident victims and the elderly also stand to lose out from the withdrawal of 'equitable liability' from April 2010, which was announced by Alistair Darling, the chancellor, in this year's Budget.



The concession, applicable to both income and corporation tax, is effectively a safety net from bankruptcy that HMRC can open where deadlines for taxpayers to file and appeal have both passed.



Typically, the Revenue would apply the concession where the liability assessed is greater than the amount which would have been charged had the tax return been submitted on time.



Charities like TaxAid have used the practice to get tax demands cancelled where a vulnerable person has received an incorrect assessment from HMRC but not appealed within the time limit.



Although not widely leveraged by accountants, the practice has, for many years, meant HMRC waived its statutory right to tax where taxpayers have showed that their true liabilities are less than the amounts it is formally demanding.



"HMRC proposes to abolish this practice," said Keith Gordon, a barrister who is petitioning Number 10 to keep the concession on the statute books.



"This means that where HMRC have estimated tax liabilities and taxpayers have not lodged a formal appeal within the statutory 30-day period, HMRC will now pursue those amounts even where taxpayers can prove that their real tax liabilities are less."



Under the concession, the amount of the legal liability is not amended, but HMRC will not pursue the difference between the original liability and the revised amount, which must be evidenced.



But tax officials have questioned the need for it to remain; citing the numerous opportunities the current self-assessment system affords to tell HMRC that the bill is wrong.



Yet Mr Gordon believes that withdrawing the concession, which is based upon the principle that individuals should be required to pay no more than the right amount of tax, will lead to injustices.



"This will expose many of the country's most vulnerable taxpayers to debts that they cannot afford and do not actually owe," he said. "HMRC should not aim to collect more than the right amount of tax."



Tax commentators also argue that as Her Majesty's Revenue & Customs has changed the law to ensure people do not pay too little tax, it should also legislate to ensure people do not pay too much.



Despite the proposed removal of the tax waiver, HMRC says there may be a small number of exceptional cases where it will accept that there was a 'reasonable excuse' for not making the return, or appealing against it, within the statutory time limits.



"In such cases HMRC will accept the late information and adjust the liability accordingly," HMRC said in an online statement. "We 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."