Equitable liability to become a statutory right
‘Equitable liability’ is a concession whereby HMRC have, to date, accepted that a taxpayer need only pay what is fair and reasonable despite legally owing much more than this.
HM Revenue and Customs (HMRC) and its forerunners have long had the power not to pursue tax in cases where itwould be ‘unconscionable’ (excessive and unfair) for them to do so. Thus, in certain tightly defined circumstances HMRC will, by concession, accept that only an ‘equitable liability’ be settled rather than the full amount of income tax or corporation tax that is legally due from a taxpayer.
In agreeing an ‘equitable liability’ HMRC normally accept the evidence of time-barred returns, accounts, claims etc where there is a tax debt but no longer any legal right to adjust the liability. The amount of the legal liability is not actually amended, but HMRC will not pursue the difference between the original liability and the revised amount.
In May 2009 HMRC announced that they intended to withdraw this concession. Numerous representations were made in an effort to persuade HMRC and the Government that the principle of equitable liability should be preserved as an important ‘safety valve’ in the tax system. It provides protection for people who have struggled with the system and find themselves faced with tax demands which may be correct in law but bear no relation to what the actual liability would be if appeals and returns etc had been submitted in good time.