What is equitable liability?
Information about equitable liability was published in the Revenue’s Tax Bulletin in August 1995.
Most people keep their tax affairs up to date and pay their tax in time time. However, where a taxpayer has not submitted his or her return, HM Revenue & Customs can determine the taxpayer’s likely tax liability so that the tax can be pursued. There is no right of appeal against such determinations, and the tax determined is legally enforceable. Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the filing date for the year of assessment in question (or one year after the determination was issued, if later).
If a taxpayer receives an assessment and does not think it is right, he or she can appeal against it and has thirty days from the date on which the notice of assessment was issued to do so. Inspectors will accept appeals once that time limit has passed if they are satisfied that there was a reasonable excuse for not making the appeal within the time limit and the application to admit the appeal late was made without unreasonable delay thereafter. If the Inspector does not think these requirements have been met, the application must be referred to the Appeal Commissioners for a decision. The Appeal Commissioners are completely independent of the Inland Revenue and their decision on this matter is final.
Otherwise, an assessment is final and conclusive and the Inland Revenue is able to take recovery proceedings — through to bankruptcy if necessary — for the full amount. There is no legal right to adjustment of the liability.
However, where the taxpayer has exhausted all other possible remedies, the Inland Revenue may, depending on the circumstances of the particular case, be prepared not to pursue its legal right to recovery for the full amount where it would be unconscionable to insist on collecting the full amount of tax assessed and legally due.
This practice is known as ‘equitable liability’. The term ‘equitable liability’ reflects the original principle of fairness to other creditors.
The Inland Revenue may be prepared to consider applying ‘equitable liability’ where it is clearly demonstrated that:
• the liability assessed is greater than the amount which would have been charged had the returns, and necessary supporting documentation, been submitted at the proper time.
• acceptable evidence is provided of what the correct liability should have been.
In such cases the Inland Revenue may be prepared to accept a reduced sum based on the evidence provided, and not to pursue its right of recovery for the full amount.
The Inland Revenue would expect full payment to be made of the reduced sum. Furthermore, it would be most unusual for such treatment to be applied more than once in favour of the same taxpayer.
In determining the revised liability, the Inland Revenue will have regard to all the relevant circumstances of the case. Acceptable evidence of the reduced liability must be produced. It will not be sufficient to seek to replace the assessment merely with the taxpayer’s or the accountant‘s estimate of the liability.
In order to make a claim for equitable liability you need a tax accountant like Taxfile in South London to help you explain your circumstances and make sure the concept of equitable liability is applied and your tax affairs are dealt with in an equal and fair way.