The measure

Under Self Assessment for both individuals and companies, if a taxpayer is required to make a return, the information on it is used to assess the tax due for the period. If no return is made HMRC can issue an estimate of the tax due. This is called a determination. Such a determination can only be replaced by the taxpayer filing a return within five years (reducing to three years from April 2010) from the statutory filing date or 12 months from the issue of the determination. Some taxpayers fail to meet these deadlines and do not have a reasonable excuse for doing so.

At present, under a long-standing concession called 'Equitable Liability', HMRC collects only the sum that would have been due for the period had the taxpayer filed the return on time. At Budget 2009 HMRC announced as part of their review of Extra-Statutory Concessions that they planned to withdraw this concession from 1 April 2010.

The proposal to withdraw 'Equitable Liability' was strongly opposed by a number of representative bodies. Equitable Liability was seen as a valuable 'safety valve' which protects taxpayers who face tax demands which may be correct in law but bear no relation to what the actual liability would have been if returns had been submitted in time.

In November 2009 it was announced that the Government recognises the value of Equitable Liability and had decided to legislate for the concession 'at the first opportunity'. This decision has been confirmed today. Legislation will be introduced to permit HMRC to continue to apply this treatment provided the relevant conditions are met.

The relevant conditions are that a taxpayer:

• shows that the figure of tax due is excessive;
• what the correct amount should have been; and
• brings its tax affairs up to date, including payment of tax, interest and penalties.

Equitable Liability can usually only apply to any taxpayer on one occasion although it may cover a number of years.

The new legislation will not alter the statutory deadlines for filing a return. Penalties and interest will continue to apply where these deadlines are not met and tax is not paid when due.

Who will be affected?

Taxpayers who have received a HMRC determination of income or corporation tax who are too late to file their tax return and can demonstrate that the sums charged are excessive.

When?

The start date for the new legislation will be confirmed in the legislation. The current concession will continue to apply until that date.