As You Were For ESC A19

HMRC abandon plans to revamp concession

Back in early July of last year HMRC launched a consultation document on the proposed revision of Extra-Statutory Concession (ESC) A19.

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 not 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).

Time limits

The time limit which applies for ESC A19 is where HMRC have failed to use information received about a source of income, within 12 months after the end of the tax year in which the information is received.

Exceptional Circumstances

In exceptional circumstances, arrears notified less than 12 months after the end of the relevant tax year may be considered where both of the following apply:

  • HMRC failed more than once to make proper use of information received about a source of income.
  • HMRC allowed tax arrears to build up over two whole tax years in succession - so at least two tax year underpayments are due. 

The consultation aimed to remove references to capital gains tax and the 'exceptional circumstances' test and introduce the concept of 'taxpayer responsibilities'. HMRC would have expected individuals to:

  • Tell them about changes in their circumstance that would affect their payments or claims.
  • Check their tax code to ensure the information included was correct and up to date. 

In return HMRC's responsibilities would have been 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 was 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 believed that a reasonable time limit for a taxpayer to contact them was before the underpaid tax is collected within the next tax year.

This month HMRC published the 'Summary of Responses' to the consultation document. Some respondents suggested that HMRC should be obliged to act on all the information it receives

when considering ESC A19 since all such information is used for the End of Year

Reconciliation process. This would include employer returns, i.e. forms P35 and P14, being

classified as relevant information for the purposes of the concession. HMRC responded by saying the department is considering the implications of accepting 2012-13 Forms P14 as information that affects a taxpayer’s code for the purposes of the Concession. This consideration will ensure

that, going forward, the Concession will continue to apply in appropriate cases of HMRC error and delay.”

To HMRC's credit they have listened to the concerns and opinions expressed by the accountancy and tax profession and have climbed down from their original proposals. With the introduction of Real Time Information errors should be minimised but only time will tell.

By:Sam Greenwell

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