Minister vows to enshrine tax safety net

Self-employed people are among the winners of a soon-to-be-announced decision not to withdraw a tax waiver that can apply if they are struck by bereavement or illness.



In his last Budget, Alistair Darling announced that the Revenue's power to effectively write off tax in cases where it would be excessive or unfair to pursue should be curtailed.



'Equitable liability' has long applied where, although an amount is technically due to HMRC, the taxpayer can prove that the true amount which should be payable is less.



Often it is the most vulnerable who have benefited from the practice, applied, for example, where a taxpayer misses a deadline to appeal an estimate of their liability.



But it was thrown into doubt in 2005, when a court ruled that HMRC had no power, discretionary or otherwise, to alter tax demands unless there was specific legislation.



Last year, the practice was listed among a number of concessions which HMRC planned to abolish, much to the disappointment of charities and tax advisors.



Now, the government says it will be legislating "at the earliest opportunity" to retain equitable liability, according to a letter sent to the Chartered Institute of Taxation (CIOT).



"It is clear that the government were caught by surprise by the strength of the reaction to their proposal to abolish this practice," the institute said.



CIOT president Andrew Hubbard added: "The most vulnerable in society need protection when things have gone badly wrong, even when they themselves may have caused the problems by their own action – or more often inaction – and the equitable liability practice was an important safety valve of last resort.



"I am delighted to have received confirmation directly from the Minister [Stephen Timms MP] that a decision has been taken to introduce legislation to put this on a proper, permanent footing."



Mr Timms said: "We have decided to legislate for this concession at the earliest opportunity. This will ensure that those taxpayers who have difficulty coping with the tax system and fail to meet their legal obligations will be protected formally in future."