Comments from ACCA
30 September 2010
ACCA is pleased to comments on the draft legislation to implement the previous extra statutory concession on the practice known as "Equitable Liability".
ACCA is of course grateful that the existing practice is to be retained and confirmed in statute. While it should always be a measure of last resort, its continued existence is an important part of the fabric of the UK tax system, allowing for relief in cases where the strict operation of the existing mechanisms for assessment and collection of tax would clearly be unjust.
The draft legislation, read in conjunction with the draft guidance, appears to fairly implement elements of the existing regime which remain appropriate under the current tax system. However, ACCA does have one concern, around the restriction of the relief to "one time only" operation. It is of course perfectly reasonable and appropriate that individuals who have relied upon the concession to relieve them of the effects of their own ignorance of the system should not be allowed to attempt to do so a second time. Almost by definition, they no longer have the excuse of ignorance. Such taxpayers should either ensure that they keep their own affairs up to date or, if unable or unwilling to contend with the complexity of the legislation, appoint an agent to manage their tax affairs for them.
The other main category of taxpayers who have previously made use of the concession are those who have been affected by illness and hence unable to manage their own affairs properly. In such a case, it is perhaps more likely that an agent will be appointed for future compliance purposes.
Where an agent has been appointed, there should normally be no risk of further default. However, this will not happen in all cases, and many individuals will choose to maintain their own affairs. It is not inconceivable though that such an individual may later suffer an illness which prevents them from fulfilling their obligations under the taxes acts, and places them a second time (through no fault of their own) in circumstances where only the proposed new "special relief" might be able to displace an unduly onerous determination.
Such cases would of course be extremely rare, and to legislate for them would be complex. The purpose of this legislation though is to accommodate rare circumstances.
ACCA supports the principle that relief should be available only as a last resort and in the most deserving of cases. ACCA believes that this would include an individual who had relied upon the "special relief" once in respect of their own ignorance, and who subsequently suffered from a mental illness as a result of which they were no longer able to manage their own affairs and again came within the potential ambit of the relief. It is perhaps less likely that relief could be offered a second time to someone who had already claimed relief based on mental incapacity. The pre-existing condition should make it reasonable to suppose that the individual ought to put measures in place, such as appointment of an agent, to prevent a recurrence of their previous problems.
The two alternatives for the legislation would be either to retain the "one time only" clause but in modified format, or to remove it from the legislation, and instead incorporate the "one time only" rule into the supporting guidance and documentation.
The advantage of the first course of action is that the provisions would have the full force of legislation. However, the effect of the legislation itself would be uncertain, having to mirror the previous rule that "it would be most unusual for such treatment to be applied more than once in favour of the same taxpayer". The Parliamentary Draughtsman may be able to create a form of words to the effect that "there is a presumption that the relief will not be granted to a person who has already made a claim in reliance on this paragraph…" but such a wording would need to be clear.
The advantage of the second course would be that guidance need not be so tightly drafted, as it will not be binding on HMRC or the Courts in the same way; nor will it be subject to the same rigours of statutory interpretation. There are already instances where HMRC and HM Treasury have declined to revise potentially ambiguous legislation on the basis that the accompanying guidance and official statements have raised a legitimate expectation that a particular treatment will be applied. The same principles should be able to apply in this case. Any individual claiming special relief should be clearly advised by HMRC that they should put in place all appropriate measures to ensure their future compliance with tax obligations. Only if their circumstances change so radically that not only are the measures no longer appropriate, but the taxpayer cannot be aware (ie through mental incapacity) that they are no longer appropriate, would relief be considered a second time.
ACCA welcomes the retention of the principles of equitable liability. However, this is an area of tax law where some flexibility should be retained. Cases of this nature should of course be considered in depth and by experienced officers of HMRC, who should be able to apply the necessary common sense to avoid unjust results. To impose a strict limit of one use only removes an element of the very fairness that the legislation seeks to preserve.