HMRC have launched a consultation document on the proposed revision of Extra-Statutory Concession (ESC) A19, with the consultation period running for 12 weeks from 3rd July – 24th September.
ESC's have been a feature of the UK's tax system for over 40 years and are a relaxation which provides taxpayers with a reduction in tax liability which they would be permitted under the strict letter of the law. Each ESC has defined criteria whereby HMRC can exercise its collection and management powers to operate a concession.
ESC A19 covers situations where an error or administrative failure of HMRC results in a person paying the wrong amount of income tax or capital gains tax. It is designed to ensure fairness for taxpayers where, in strictness, the law says tax is owing but it would be unfair to pursue payment. The use of ESC A19 can give comfort to, in particular, those vulnerable taxpayers who are presented with large, unexpected tax bills.
The concession allows tax to be written off in a given set of circumstances which are both factual and subjective. Needless to say it is more straightforward to determine the factual conditions which require arrears of tax to have arisen due to HMRC delay in using information about an individual which they have in their possession and those arrears are at least one year old. The concession can also apply to waive tax arrears which are less than a year old where HMRC's failure to make use of information has been persistent and have allowed the tax arrears to build up over two whole tax years in succession (exceptional circumstances).
The subjective condition to be satisfied depends on whether HMRC think it was reasonable for a person to have believed that their tax affairs were in order before they dropped the bombshell. If not, then the concession will not be applied.
Early last year ESC A19 made the news after the fiasco caused by HMRC issuing 450,000 tax calculations for unpaid tax relating to the year 2007/08.
Following discussions with representative bodies, HMRC has concluded that a consultation will be an opportunity to improve the concession, make it more easily understood by taxpayers and bring greater objectivity to it.
The consultation aims to remove references to capital gains tax and the 'exceptional circumstances' test and introduce the concept of 'taxpayer responsibilities'. HMRC will expect individuals to:
- Tell them about changes in their circumstance that will affect their payments or claims.
- Check their tax code to ensure the information included is correct and up to date.
When providing HMRC with information taxpayers would be required to keep a note of the date they contacted the Revenue, the name of the person they spoke to and details of the change they reported and, where appropriate, provide records that support what they tell HMRC. A good practice and habit for any taxpayer to adopt when dealing with a department that is prone to delay and, upon occasion, losing information.
In return HMRC's responsibilities will be to:
- Issue a tax code or amend an individual's tax code when they are in possession of relevant facts sent to them by a taxpayer.
- Accurately record and use the information provided as part of the annual PAYE reconciliation process.
It is further proposed that a time limit should apply to ESC A19. As the timing of issue of tax calculations can occur throughout the tax year, HMRC believe that a reasonable time limit for a taxpayer to contact them is before the underpaid tax is collected within the next tax year.
If a new version of ESC A19 is approved then it is intended that it will be operative from 6th April 2013 and therefore applying to underpayments of tax notified in 2013-14 onwards.
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