Equitable Liability: Reducing Overcharged Tax

July 1st, 2008

In certain circumstances the little known practice of Equitable Liability can be invoked to reduce tax debts.
The normal way to displace Tax Determinations is to submit tax returns showing the correct level of profits. Currently, this can only be done within a five-year window.  Where that route isn’t open to taxpayers then HMRC’s Enforcement and Insolvency Services (EIS) based in Worthing can consider Equitable Liability.  Basically that means the taxman will only collect a fair amount of tax; and not the figure they have already assessed.  This is particularly useful for taxpayers who ignored demands until the formal appeal system time limits ran out.  That happens most frequently with taxpayers who have been ill or too stressed or confused to deal with their tax arrears; particularly when they had no way of paying the large estimates used by the tax inspector.
HMRC said (in August 1995) that Equitable Liability could apply if: “in the circumstances of the particular case and in the light of all the evidence, 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, and ‘acceptable evidence is provided of what the correct liability should have been.”  Experience also shows that the taxman also requires that: taxpayers can provide legitimate reasons why they failed to deal properly with their tax affairs; and that their tax affairs are otherwise up to date.
Equitable Liability is a last resort but one that can be very useful, especially when someone is faced with a high tax demand based on estimated figures.  In some Tax Enquiry situations it can be used to clear earlier years’ arrears.
What does it mean for me?

If you have a tax dispute or tax debt issue where the Revenue’s figures are based on estimated figures then an Equitable Liability argument might help you. Where worthwhile sums are at stake it is always worth engaging skilled and experienced tax advisers to prepare your case.  Lynam Tax Enquiry Experts have helped scores of clients with tax debt problems.

Call today for a confidential, discreet discussion with our experienced Tax Investigation Specialists.
Call Paul Lynam now on 0845 643 9997