HM Revenue and Customs (HMRC) have launched a consultation document, which aims to provide certainty for taxpayers that Extra-Statutory Concessions (ESCs) have the force of law.
An ESC is an exception to the tax law as written, which HMRC apply where strict application of the law would result in unfairness to a taxpayer. There are well over 100 ESCs – so many that HMRC felt it necessary to issue a booklet (IR1) with details of those currently applicable.
The problem with ESCs has always been that it is dangerous to rely on them, because HMRC can change their view of a particular circumstance and withdraw the ESC at any time. Many a taxpayer has come to grief by relying on an ESC, only to find that in the fullness of time HMRC have moved the goalposts.
Following a House of Lords case, which has questioned the degree of freedom HMRC have with regard to applying ESCs, HMRC have put all ESCs under review and withdrawn the IR1 booklet. The Government has included enabling legislation in the 2008 Finance Act to allow ESCs to have the effect of law and a consultation process has been launched, which ends in January 2009.
It is to be hoped, therefore, that the next Budget will contain provisions which will give what are currently ESCs the force of law. This was not mentioned in the recent Pre-Budget Report, however.
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Partner Note
ICAEW Tax Faculty release, 11 November 2008. See HMRC’s budget release about this at http://www.hmrc.gov.uk/budget2008/bn95.pdf.