Disappearing Concessions

By | 27 July 2010

Extra Statutory Concessions (ESCs) have been with us for decades, but are now slowly disappearing. This follows the House of Lords’ decision in R v HM Commissioners of Inland Revenue ex p Wilkinson [2006] STC 270, which raised issues about the validity of ESCs and the extent of HMRC’s discretion to make and apply them under its care and management (now ‘collection and management’) powers in TMA 1970, s 1(1).

The Wilkinson case resulted in HMRC reviewing all ESCs. Consequently, some ESCs have become law, whilst others have simply continued. However, a number have been withrawn completely. It is clearly important to be aware in particular about those ESCs which have been withdrawn.


HMRC issued the Technical Note ‘Withdrawal of extra statutory concessions‘ on 9 December 2009. The document provided details of 9 ESCs to be withdrawn, which in HMRC’s view appear to be obselete. HMRC stated: ‘Where an ESC has to be withdrawn, HMRC recognise that taxpayers may have to make adjustments, and will generally offer an appropriate period of notice before the concessionary treatment formally comes to an end.’

Subsequently, on 2 June 2010, HMRC announced (in Revenue & Customs Brief 24/10) the withdrawal of a further ESC of greater importance. ESC B46 (‘Automatic penalties for late company and employer’s and contractors’ end of year returns’) will be withdrawn on 31 March 2011. ESC B46 provides that HMRC will not charge a penalty for corporation tax or employer and Construction Industry Scheme end of year returns received on or before the last business day within 7 days following the statutory filing date. This concession was helpful, particularly for larger businesses.

HMRC commented in its Brief 24/10 that the move towards statutory online filing of tax returns means that ESC B46 has become ‘redundant’ as the possible causes of late filing it was intended to address (e.g. postal delays) can no longer arise. Businesses affected by the withdrawal of the concession will need to argue that there was a reasonable excuse for late filing, and possibly appeal against late filing penalties before the Tribunal.

The future of ESC C16?

Another popular and commonly used concession is ESC C16 (‘Dissolution of companies under sections 652 and 652A Companies Act 1985: Distributions to shareholders’). This concession broadly allows distributions in the course of dissolving and striking off a company to be treated as capital (as opposed to income) receipts in the hands of the shareholders, if certain conditions are satisfied. The concession is intended to save the costs of a formal winding up of the company.

HMRC has considered the introduction of legislation so that ESC C16 is replaced but effectively becomes law. However, certain issues and concerns have been raised. In particular:

  • In HMRC’s view, it would require lengthy and complex legislation to formally implement ESC C16;
  • HMRC also considers that ESC C16 is used for tax avoidance purposes. The legislation would therefore need to be drafted to prevent abuse.

On the first of HMRC’s concerns, it is surely not beyond the draftsman’s capabilities to legislate for ESC C16 in relatively straightforward terms. After all, the Tax Law Rewrite Project has resulted in a whole raft of simpler (albeit considerably longer) legislation.

With regard to the second bullet point above, HMRC has provided no evidence that ESC C16 is being abused, which suggests that the abuse is more perceived than real. In any event, the answer to the problem would surely be to make the legislation subject to a statutory clearance procedure, rather like the existing informal clearance process. 

If ESC C16 cannot continue to operate unchanged, the only options would seem to be to legislate or withdraw the concession completely. It seems (to me, at least) that HMRC would prefer the latter option. We shall have to wait and see.

The above article is reproduced from ‘Practice Update’ (July/August 2010), a tax Newsletter produced by Mark McLaughlin Associates Ltd. To download current and past editions of Practice Update, see the Newsletters section.