Special Relief - (The relief formerly known as Equitable Liability)
This is an important ‘relief of last resort’ for taxpayers who have missed all other deadlines and face a tax bill from HMRC, where there is no statutory right to amend the actual legal liability because the relevant time limits have passed.
The equitable liability concession was previously contained in HMRC’s body of extra statutory concessions but was a relief that was very much below the radar.
HMRC announced the withdrawal of a number of extra-statutory concessions in 2009, the equitable liability concession being one of them. This led to an outcry from the profession and ultimately to the principle of equitable liability being retained and brought within statute and given a new name, special relief.
Although the relief has been with us on a statutory basis since 1 April 2011, it is worth reminding ourselves of this relief which can be a lifeline in some cases.
Special relief enables HMRC to consider waiving all or part of the tax that had become legally due where it was clearly demonstrated that:
- the liability assessed or determined was greater than the amount which would have been charged had the returns, and necessary supporting documentation, been submitted at the proper time;
- acceptable evidence was provided of what the correct liability should have been.
In such cases HMRC will accept a reduced sum based on the evidence provided, if, in their view, it would be unconscionable to pursue recovery of the full amount. Special relief is a form of overpayment relief which can only apply to amounts charged in HMRC determinations for income tax self-assessment or corporation tax self-assessment where no other statutory remedy is available.
The treatment is dependent on the circumstances of the particular case, and is conditional on the customer's affairs being brought fully up to date before the claim can be considered.
Under the special relief provisions, taxpayers can make a late appeal against an amendment or assessment if they either:
- have a reasonable excuse for not having appealed within time, or
- make a successful application to the tax tribunal.
An important point to note is that a claim for special relief is not subject to the normal four year time limit for making claims and elections.
There are three specific conditions that need to be met for special relief to be available. These reflect HMRC’s former practice in applying equitable liability and are as follows:
A – in the opinion of the Commissioners it would be unconscionable for HMRC to seek to recover the amount which has been charged by a determination, or refuse to repay it if it has already been paid;
B – the person’s tax affairs are otherwise up to date or arrangements have been made to the satisfaction of the Commissioners to bring them up to date as far as possible;
C – the person has not previously claimed special relief or sought equitable liability, whether or not relief was given.
Condition C may be disregarded in exceptional circumstances.
Any claim for special relief must include such information and documentation as is reasonably required to determine whether these conditions are met.
HMRC is at pains to point out in its guidance that special relief is intended to be a final and exceptional remedy and that there must be special circumstances which would make it ‘unconscionable’ to collect the tax. HMRC gives the following examples:
- the taxpayer was suffering from a temporary or sporadic illness, including mental illness, and consequently find it particularly difficult to engage with the tax system;
- the taxpayer has not received our notices or other communications for reasons outside their control;
- the taxpayer is insolvent and failure to write-off the unconscionable amount would be to the detriment of other creditors.
HMRC also gives examples of situations where that it considers would not make it ‘unconscionable’ to collect the tax, as follows:
- the taxpayer registers as self-employed and never gets any business but remains in the self assessment system as a result of failing to notify HMRC of a cessation;
- the taxpayer ceases to be registered under self assessment but fails to notify HMRC of a change of address during the 12 month inquiry window; during which time, a determination is issued;
- the taxpayer is a subcontractor who suffers deductions under the construction industry scheme and believe they have nothing further to pay, so do not respond to determinations and other contacts
- the taxpayer is aware of their responsibilities but negligently fails to communicate with HMRC.
The above examples are HMRC’s interpretation of the term ‘unconscionable’ and these interpretations have not been tested through the courts. Practitioners should be aware that if HMRC refuses a claim for special relief, then an application may be made to the tax tribunal.
After all, we have recently seen the tax tribunals take a far more lenient view regarding the interpretation of ‘reasonable excuse’ than HMRC; they may well also do so regarding what may be regarded as unconscionable, which the Oxford English Dictionary defines as ‘not right or reasonable’ or ‘unreasonably excessive’.