Alistair Darling has announced plans to withdraw ‘equitable liability’ with effect from April 2010. Equitable liability allowed tax demands to be scaled back during periods of illness and bereavement. This move by the Chancellor is expected to have implications for self-employed people and the elderly.

The equitable liability concession applied to corporation and income tax. It allowed HMRC to use this rule as a safety net against bankruptcy when taxpayers had missed their deadlines for tax filing and appeals. HMRC would usually apply these concessions when the assessed liability is more than the tax that would have been charged if the return had been filed on time.

Keith Gordon, a barrister who is petitioning against the abolition of this concession said, “HMRC proposes to abolish this practice. 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 HMRC did not pursue the difference between the liable amount and the revised amount although the legal tax liability was not reduced. There must be evidence to support the reduced amount due.

Tax officials have long questioned the need for this concession to remain. They argue that taxpayers are awarded many opportunities to tell HMRC if a tax bill is incorrect. However, Mr Gordon is counter-arguing that the removal of this system will lead to injustices.

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

While this rule has been changed to ensure that people are not paying too little tax, commentators have stated that HMRC should also be legislating to ensure that people do not end up paying too much.

HMRC have said that they will still accept late returns in exceptional cases. Speaking in an online statement they said, “In such cases HMRC will accept the late information and adjust the liability accordingly. 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.”

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