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HMRC drops plan to rewrite tax arrears concession

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HMRC has abandoned a proposal to write a ‘taxpayer responsibilities’ test to extra-statutory concession A19, which sets out how HMRC may decide not to collect arrears of income and capital gains tax where it has not acted properly on information received. A tax barrister warned last September that the proposed new version was ‘a flagrant attempt to emasculate the present concession’. But HMRC has pointed out that ‘the occasions when A19 will apply in the future will diminish … because the majority of customers are now notified of their arrears within the 12-month time limit’.

The new test would have replaced the existing condition that the taxpayer could 'reasonably have believed' that his or her tax affairs were in order. Respondents expressed concern at ‘the shifting of responsibility for “getting things right” away from HMRC and on to the individual’, HMRC said in a response document published on Tuesday.

There were 71 written responses to last July’s consultation, and some tax professionals were fiercely critical of the proposals. As Tax Journal reported last September, tax barrister Keith Gordon launched an online petition urging HMRC not to change the concession. The petition had attracted 971 signatures when it closed four months ago.

Gordon, who practises at Atlas Tax Chambers, had warned that the proposed changes would prevent use of the concession by ‘the very taxpayers for whom it was designed’.

He told Tax Journal today: ‘I am delighted that HMRC appear to have dropped their proposals to rewrite ESC A19. It is very difficult when government departments set their heart on a particular change of policy for the proposal to be withdrawn following consultation. I would like to commend those officials responsible for recognising that their proposals should be dropped.

‘It remains to be seen how HMRC will treat existing claims based upon [end of year returns P14] – I hope that HMRC will now publicly accept that they always were relevant information for the purposes of A19, as common sense dictates.’

Gordon thanked the ‘very many’ tax practitioners who signed the online petition.

Writing in Taxation last September, he described A19 as a ‘get-out-of-jail free’ card to would-be compliant taxpayers: ‘In some ways, it provides safeguards similar to those inherent in the discovery assessment rules, but applies them to taxpayers who are outside the scope of self-assessment.’

Grant Thornton director Mike Warburton, writing in Tax Journal, warned that HMRC would attempt to ‘apply an objective measure’ of how much taxpayers should be expected to understand about the way the tax system works.

‘Does this mean that we are then going to categorise taxpayers according to their age, educational achievement or lifetime experiences?’ he asked.

HMRC said: ‘It is clear from the responses … that a more desirable outcome would be a more consistent application of the current form of A19. To achieve this, HMRC recognises that it needs to develop its guidance in applying the current text of the concession and the information available to those looking to benefit from the concession, along with associated training for HMRC staff.’

HMRC will retain the ‘reasonable belief’ test ‘until we have provided customers greater transparency on understanding and managing their tax affairs’.

The department had also proposed to exclude arrears of capital gains tax, on the basis that A19 was made redundant by the requirement to self-assess capital gains. But it has decided that concession will continue to apply to CGT arrears ‘at this time’.

‘We are going to improve our guidance’

An HMRC spokesman told Tax Journal today: ‘The ESC A19 consultation was about improving our handling of the concession to ensure that it is applied fairly, and is user-friendly and accessible to customers in the future. There will be no changes to the terms of ESCA 19, and HMRC is keen to ensure that it continues to apply wherever appropriate.

‘In response to the consultation and discussions with representative bodies, we are going to improve our guidance, making it more user-friendly and accessible, particularly for our customers who need help in managing their tax affairs.’