Tax safety net to keep protecting self-employed

Contractors and the self-employed will be among the beneficiaries of the government’s decision to enshrine the taxman’s power to forgive tax debts that are legally due but which are shown to be excessive and unfair.

Although it has long applied, the ‘equitable liability' concession was meant to be abolished in April 2010 after a court ruled that HM Revenue & Customs had no power to alter tax demands unless there was specific legislative power.

But supporters of the concession convinced the government that it should continue to be used to cancel or drastically reduce tax bills where, although tax was technically due, the taxpayer could prove that the true amount payable was less than that being demanded.

In the past, the power has helped accident victims, the elderly and the vulnerable including the self-employed if, say, they were hit by illness or bereavement but missed the deadline to appeal to the tax notice owing to their circumstances.

With these taxpayer groups in mind, and not forgetting the court ruling, the government passed legislation to retain the practice of equitable liability in March and it came into effect from this month.

The Chartered Institute of Taxation, which represents 15,000 tax advisors, welcomed the move, but reminded that the legislation affords cover only for income tax self-assessment, including Class 4 National Insurance, and corporation tax self-assessment (but not other NIC classes nor VAT).

The Low Incomes Tax Reform Group reflected: “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.  We are delighted that legislation has now put this on a proper, permanent footing.”

Robin Williamson, a director at LITRG, is particularly pleased that the legislative changes allow the relief to be claimed more than once if there are exceptional circumstances.

“However it is disappointing that the government have defined the coverage of the new relief fairly narrowly,” he said, “and not included the full range of national insurance classes or VAT.”

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