Voluntary Restitution

HMRC’s recent Let Property Campaign allows taxpayers to declare previously unpaid tax on rental income and bring their tax affairs up to date. In some cases, HMRC may identify historic property tax liabilities that it cannot legally assess and invite the taxpayer to make a Voluntary Restitution payment. This factsheet examines the law and ethics surrounding such payments.

What is Voluntary Restitution?

HMRC have certain time limits, known as statutory assessment periods, by which they can assess for unpaid tax.

In most cases, this is four years, but it is extended to six years for careless errors and 20 years for deliberate errors.If the limit has passed, the tax is not legally collectible.

HMRC’s Enquiry Manual states:

·Where tax is not legally enforceable, HMRC may invite the taxpayer to make a Voluntary Restitution payment on equitable grounds, which involves:

oSeeking the tax plus simple interest.

oNo penalties.

·If the taxpayer refuses:

oHMRC must not press the point.

oNegotiations continue ignoring those sums.

In short, HMRC can apply moral pressure, not legal obligation.

For instance, if a taxpayer genuinely overlooked income for several years, and some of those years are now outside the statutory assessment period, HMRC might invite the taxpayer to make a Voluntary Restitution payment for those older years.

‘Out of time’ errors

As your accountants, if we establish that there is an ‘out of time’ error, we will explain:

·The error.

·That HMRC cannot assess.

·That HMRC may invite Voluntary Restitution.

·That payment is voluntary, and

·That no penalties would normally apply.

We will not force or pressure you to pay, nor will we treat Voluntary Restitution as a compliance requirement.

Why make a Voluntary Restitution payment?

You may have a strong moral preference to pay, in which case making a Voluntary Restitution payment could give you comfort and a sense of finality.

This could potentially reduce future friction between you and HMRC.

What is the recommended course of action?

Not making a Voluntary Restitution payment will generally be our advice, however. This course of action is legally correct and, of course, keeps your money in your pocket.

Be aware when signing any settlement agreement with HMRC – if a Voluntary Restitution amount is incorporated into a signed settlement agreement, the amount becomes a legally binding contractual obligation.

If there is a wider settlement strategy in play, it could be beneficial to make a partial voluntary payment as part of that strategy.

Further information

HMRC’s guidance on Voluntary Restitution can be found in their Enquiry Manual:

https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em3980