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Client sold second home - no 30 day return done

Client did mention in amongst a long email, but I didn't pick up on it. Do I pay the penalties now?

Didn't find your answer?

Ok, so spoken to a client in the last couple of days who tell me they sold their second home (never their main residence) in the first lockdown.  Going back through records I can see that they did put a sentence to this effect in an email about 8 weeks after the sale.

The thing was this was in July, and it was one sentence in an email which was mainly about SEISS.  With everything going on, I did not pick up on it and answered the other points in their email but it passed me by.  Obviously I should have picked this up at the time.

Speaking to the client they think there will either be a very small gain but most likely a loss on sale.

The return will now be more than six months late and as it is a joint property, there will be late filing penalties of £400 each so £800.  This is more than I charge the couple in a year ordinarily.

First question, is there any chance of getting the penalty suspended?  Presumably not if it was a one-off transaction? (They do have another property to which it will apply in the next couple of years) but we can hardly claim its a systematic problem which we can fix.

I am struggling to think of a reasonable excuse, they had to work from home and home-school young kids due to COVID but I am assuming that will make no difference.

Am I missing another way to avoid the penalties?

Finally, presuming we can't get it suspended at all, do I end up having to pay the penalties for them?  It would be galling to think missing one sentence in an email has cost me £800 but it may be the only way?  Or do I offer to pay the £300 each over 6 months penalty as it would have been over 30 days late anyway?  What do people think?

 

Replies (36)

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By Rammstein1
15th Dec 2020 15:38

If there is no CGT to pay there is nothing to report. Do the calculation first.

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Scooby
By gainsborough
15th Dec 2020 15:42

I would see if there is indeed a loss (or a gain covered by AE) first as that would remove your filing requirement.

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By richard thomas
15th Dec 2020 15:42

Whoa!

Are you saying that if you had picked up the sale in the email, you would have got them to file a return? Would you have looked at the law or at least any HMRC or professional body guidance before doing that? If you had, you might have seen that no return is required if there is a loss, and if there is a gain you would be entitled to set the annual exempt amount (AEA) against the "very small gain" with the result that no notional CGT was chargeable - read paragraphs 3 and 4 of Sch 2 FA 2019 - and so no return was required.

This means you don't have to worry about penalties, but what penalties for late returns do you think can be suspended? The answer is none. Are you confusing Sch 55 FA 2009 with Sch 24 FA 2007 where penalties can be suspended if they are for careless conduct. That is not a relevant concept for late filing penalties.

You are of course correct to think about reasonable excuse. They might get away with RE for the £100 penalties on the basis that they were unaware of the new law and could not reasonably have been expected to know. Did they ask their solicitor whether there were any tax issues? But once they told you, that excuse might no longer wash to protect them from the 6 month penalties. They could argue that by telling you of the sale they thought they could rely on you as a third party to tell them about their liability to make the return, but for that to succeed (and replace the previous RE) they would have had to exercise reasonable care eg by following up your non-reply. It would depend how well you argued the point with HMRC, and if it was worth it, the FTT.

An argument that the penalties should be halved because of joint ownership on the grounds of special circs might work , that to charge double penalties is not in accordance with the compliance intent of the legislation. There is an example in the HMRC Compliance Manual on this involving partnerships and VAT.

But all this talk of penalties is moot if the facts are correct and there had been not previous disposal of residential pretty in the year that would have used up the AEA.

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Giraffe
By Luke
15th Dec 2020 15:45

Thank you all! My brain is a bit fuzzled this afternoon and I had gone into panic mode.

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By OldParkAcct
15th Dec 2020 15:54

If anything the solicitor dealing with the sale is the one who has the responsibility to remind the client that a return may be due. Certainly all the solicitors I use seem to inform clients that a return may be due, even if they haven't got a clue as to the actual requirements.

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Replying to OldParkAcct:
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By richard thomas
15th Dec 2020 16:12

That is comforting to know. On another recent thread I compared about solicitors' failure to tell non-resident clients selling UK property about the NRCGT return that came in in 2015.

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By frankfx
15th Dec 2020 16:31

Was the email a densely packed sheet of verbage.

Without white space.

Zero calls to action

Some of the QAs here follow that pattern.

And we are expected to wade through that.

Using a digital highlighter to sort the wheat from the chaff.

Hopefully all will be right.

I would be interested to learn if the solicitor commented on the filing obligations.

I urge my clients to put suitable subject headers in emails.

And keep threads in line with subject matter

Sadly, It doesn't work!!!

Perhaps we could bury such a subject header

' formal request for advice'

"notification of tax event'

clause in the the T &C's.

I am sure the larger multi staff and partner practices have a formal procedure for this eventuality.

What do other Awebers do?
Does it work?

OP, Please kindly keep us in the loop.

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By Paul Crowley
15th Dec 2020 16:41

Concur
Solicitor would have advised
Estate agent should as well
8 weeks was already late

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Replying to Paul Crowley:
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By frankfx
15th Dec 2020 17:01

Paul Crowley wrote:

Concur
Solicitor would have advised
Estate agent should as well
8 weeks was already late

OP

Assuming other professionals had informed seller that action was required.

I am surprised/ not surprised (in equal measure ) that taxpayer didn't chase you !

'' Oi , don't I have have to file something with HMRC ''
" I don't like to chase 'cos I know how busy you are "

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Replying to frankfx:
Giraffe
By Luke
15th Dec 2020 17:32

Definitely no chasing from them!

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Replying to Luke:
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By New To Accountancy
15th Dec 2020 18:27

In all CGT returns I've seen, the solicitor has informed the client of CGT.

On lengthy emails, I tend to copy and paste onto my responding email and highlight my answer in red, this way not missing anything but also making me take note of what is being asked/said and stops the 'wish I hadn't of said that because I've just given myself a job' issue. I don't respond quickly to emails for a few reasons:
1 I can misread/misunderstand
2 I can give myself a job if I'm not clever with my responses.
3 I don't want to appear 'too available' because this generates more and more emails from the clients
4 I've regretted quick emails in the past because I haven't added certain points and then looked unprofessional sending further emails because the previous emails lacked clarity.

It does take longer but you get fewer in return, in my experience.

I also like to put:

I will
.
.
.

You will
.
.
.
This way, if I've missed something, it's the clients opportunity to point this out, it is also my back up.

Hope that helps.

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Replying to New To Accountancy:
Giraffe
By Luke
15th Dec 2020 21:17

Thank you for these helpful tips. Ironically I have been in practice for decades so accepting tips from ‘newtoaccountancy’ is amusing but you make good points that are worth being reminded of.

The annoying thing is I often do copy the clients text and answer point by point in a different colour. I just didn’t this time.

You make very valid points about not rushing replies and not being too available. I know I am guilty of this. I think it is being a sole practitioner and the temptation to just quickly cross something off the to-do list.

To be fair to this client they are usually no hassle, it’s a straightforward job to do and the fee is decent for the time involved.

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Replying to Luke:
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By Homeworker
16th Dec 2020 09:50

Luke wrote:

Thank you for these helpful tips. Ironically I have been in practice for decades so accepting tips from ‘newtoaccountancy’ is amusing but you make good points that are worth being reminded of.

The annoying thing is I often do copy the clients text and answer point by point in a different colour. I just didn’t this time.

You make very valid points about not rushing replies and not being too available. I know I am guilty of this. I think it is being a sole practitioner and the temptation to just quickly cross something off the to-do list.

To be fair to this client they are usually no hassle, it’s a straightforward job to do and the fee is decent for the time involved.


As another (more or less) sole practioner (sorry hubby!) with decades of experience I can totally relate to this, especially the bit about being too available.
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Replying to Luke:
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By New To Accountancy
16th Dec 2020 11:05

You're welcome, that is the beauty of this forum, we are all at different levels to be able to help each other.

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Replying to Paul Crowley:
By Paul D Utherone
16th Dec 2020 10:21

Paul Crowley wrote:

Concur
Solicitor would have advised
Estate agent should as well
8 weeks was already late


But would they. Even if one might hope that they might have mentioned the need to take further advice, I suspect many would see it as not their job, or outside their engagement as tax work, and quite possibly do nothing.
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RLI
By lionofludesch
15th Dec 2020 18:16

I thought these penalties were light touch in year one.

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Replying to lionofludesch:
Giraffe
By Luke
15th Dec 2020 21:09

Only light touch for the first few months, all returns for disposals prior to 30 June had to be submitted by 31st July I believe.

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By fawltybasil2575
15th Dec 2020 22:56

@ Luke (OP).

(1) I trust that earlier posters have put your mind at rest re the clients at issue (certainly you have no cause for concern, on the basis of the information which you have supplied). I do detect, if I may say so without causing offence, an element of excessive self-criticism, which might cause future problems in other cases. Even if the Gains at issue DID result in the failure to submit a CGT “30 days” return, the assumption (your initial question refers) that you should pay any resultant penalties implies an acceptance that you were entirely to blame for the failure: such is an unhealthy approach, and in reality failures by the clients and/or by other agents acting for them should be considered carefully before offering to pay Penalties on behalf of clients (with resultant adverse consequences potentially to your PII position, now and in the future).

Depending on the wording of your Engagement Letters, it may even be that your exposure is even less than I have stated above.

(2) On the “other side of the coin” I feel that you should take a wider view of the “30 days” returns, and adopt a more PROACTIVE approach. You clearly consider that you have an obligation to attend to clients’ “30 days” returns. If such be the case, then I would strongly recommend that a circular letter be sent to all clients who, to your knowledge, own residential properties (and similar letters to those clients where they MIGHT own such properties) – in that regard, I consider that an accountant should, as part of KYC requirements, know of all properties so held (and request clients to notify you if they acquire such properties in the future).

I sent circular letters to all potential clients, several months prior to 6 April 2020, requesting them to complete a questionnaire form showing full details of such residential properties, in terms of acquisition dates and amounts; enhancement expenditure dates and amounts; use of the property (again, dates and amounts) from acquisition to date, so as to (in paraphrasing) “assist me in the future in attending promptly to the CGT returns if and when you dispose of the property/properties”.

"Follow up" letters should be sent in the absence of responses. If a client then fails to notify you of a disposal for which a return should have been submitted, perhaps contending that he mentioned the disposal to you in a phone conversation several months ago, you have a ready defence to any contention of negligence (ie their failure to complete the questionnaire).

Retaining the completed questionnaire on file should of course in any event assist in responding to any request from the client for an estimated CGT liability.

Basil.

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Replying to fawltybasil2575:
Giraffe
By Luke
16th Dec 2020 09:59

Thank you Basil.

I am definitely reassured and have got out of the initial panic mode of yesterday. My engagement letters are standard ICAEW ones, many are slightly old though so could do with updating.

I am indeed excessively self-critical at times. As a sole practitioner, I spend such a lot of time double checking things to make sure I don't make mistakes, that without wishing to sound smug, (I think) I very rarely do make mistakes that are not spotted and corrected before they go out the door. So, when I do make a mistake I panic. I think the stress of the last few months and the fact I am mentally exhausted exacerbated this yesterday.

I have been through my property owning clients and think this is the only one I had not told about the 30 day reporting! Typical!

I already have a full client list with all their relevant deadlines on but I think I will spend some time categorising clients though as to what type of income they have so that in future I will be much better placed to ensure I catch ALL relevant clients with relevant changes as they occur.

Asking those with property to get the costs information together in advance is a great idea, I will definitely do that in the New Year.

Thank you.

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blue sheep
By Nigel Henshaw
16th Dec 2020 09:40

We had a client that told us about a sale 3 months after completion - my first question was "did the solicitor not tell you you needed to report it" answer was no

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Replying to NH:
Giraffe
By Luke
16th Dec 2020 09:45

Interesting, if it comes to a taxable gain and penalties, I will be asking them if the solicitor told them of the new 30 day rule.

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By The Dullard
16th Dec 2020 09:53

Just to clarify, if their is no tax to pay then no return is required, IF THE CLIENT IS UK RESIDENT. Returns are required from non-residents, in relation to all UK property related disposals, in all instances.

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Replying to The Dullard:
Giraffe
By Luke
16th Dec 2020 10:00

Thanks Dullard, good point to make. They are UK resident.

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Replying to The Dullard:
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By Brend201
16th Dec 2020 10:29

Yes, good point. My employer (non-resident) sold a UK property a few weeks ago and his UK solicitor never mentioned it. Form was submitted about a week ago (one week late) and a penalty is expected. Nothing has arrived yet.

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Replying to Brend201:
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By Brend201
13th Jan 2021 12:43

Penalty has duly arrived, despite the sale having been at a significant loss.

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By Comptable
16th Dec 2020 10:48

Did you handle the sale or was there a solicitor involved?*
If there was a solicitor the he/she would surly have pointed out the CGT issue to the client.
I was involved in the sale of a property with exchange in February 2020 and completion in April and the solicitor advised that CGT was payable in 30 days and when I disagreed he wrote disclaiming any responsibility for our failure to comply.

* for those who will jump up and shout about it this is a rhetorical question

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By fawltybasil2575
16th Dec 2020 11:46

This is a link to a very interesting article in the Law Society Gazette in April 2020.

https://www.lawgazette.co.uk/practice-points/a-lull-before-the-storm/510...

One must not assume automatically that the solicitor has any legal responsibility if they do not mention, to their client, the potential requirement to submit a CGT land return (whether they have any ethical responsibility is another matter).

Fair play decrees that the solicitor should notify their client of the new legislation and offer their own services in that regard (if they have taken the decision to advise on, and submit, such returns); and that, if they do not provide such services themselves, they advise the client to consult their accountant (if they have one)(perhaps recommending an accountant whom they are aware has the required experience and capacity).

I would be interested to know the approach taken by solicitors, in general, in relation to this new tax.

Where a client notifies their accountant that they have disposed of a relevant residential property several months ago (with contract and completion dates after 5 April 2020) but that their solicitor made no reference to the new legislation, I would caution against automatically adopting the "go sue your solicitor" approach: this could "come back to bite" if the solicitor responds with "Mr. Client, your Client Care letter with our firm states that we are not responsible for tax matters, so if you have an accountant who deals with your tax affairs, go sue him instead".

When time permits, I shall research further (if any AWEB members with legal qualifications - I understand there are a few - could add comment, I would greatly appreciate their views).

Basil.

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By carnmores
16th Dec 2020 15:51

I made a submission for / with a friend last week. The site said that all property sales have to be reported not just taxable ones. In the submission there was no taxable gain as lettings relief and the annual allowance were available so should a return have been made?
Also it is simple to get the client to do it through the CGT portal. If clients struggle to do it get them to download chrome remote desktop and get them to send a one off computer share request and you as the accountant can hopefully help them fill it in.
My view is that the main residence relief is going to be reviewed with a view to changing the rules to increase the tax take I know that that will be unpopular but it is one that i am not against provided that it is reasonable and better than a wealth tax

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Replying to carnmores:
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By richard thomas
16th Dec 2020 16:40

Can you give chapter and verse, ie a link to the relevant webpage, that says that all sales have to be reported within 30 days?

On https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax it says:

"If you sold property in the UK on or after 6 April 2020

You must report and pay any tax due on UK residential property using a Capital Gains Tax on UK property account within 30 days of selling it."

It is only non-residents who have to report sales even if they have no tax to pay.

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Replying to richard thomas:
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By carnmores
16th Dec 2020 17:18

Actually I tend to agree with you but my friend was insistent that as he was claiming lettings relief he should protect himself against any comeback by submitting. The link you gave is obviously the one we used. The problem will be where the taxpayer thinks that no 'gain' was made (ie not understanding the implications of letting out a property / transfers after separation etc) and that turns out to be wrong and a taxable gain did arise and submission should have been made so then a penalty will be levied.

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Replying to carnmores:
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By jillpalmer
16th Dec 2020 23:36

??? I thought lettings relief ceased for 2020/21.

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Replying to jillpalmer:
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By Wanderer
16th Dec 2020 23:58

You thought wrong.
Modified - Yes.
Ceased - No.

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By Tax Dragon
17th Dec 2020 05:19

Slightly off piste, perhaps, but not entirely unrelated (and maybe supports some of Basil's points, eg re your client contracts)...

If someone buys a property, they may have to make a return pretty pronto. Would you consider paying any penalties were it submitted late?

I know the comparison doesn't really work - solicitors deal with SDLT - except perhaps for those Aweb members who do advise on SDLT. (I don't, for obvious reasons. I get a man in for that.) But maybe it gives pause for thought - and giving pause for thought is what I'm about, most often, in here.

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By carnmores
17th Dec 2020 15:09

can someone clarify the lettings relief changes for me. I understand that you have to have been 'sharing' your property with a tenant to qualify for relief from April 6? so if you have a tenant who pays say £5k a year non taxable under the rent a room scheme the PPR gain is apportioned and lettings relief available and the net gain subject to CGT after any unused annual allowance . I believe that this is the same as before 5th April?

On the other hand if you opt out of RAR if your rental income is more than £7,500 the situation is the same so it would appear that for higher end rentals using the RAR might be less tax efficient than using the usual property rules?

Anyway I am confusing myself so off to an office party which is 90% zoom and 10% at the office , we will all be at different desks there are 5 of us in a room for 50. we will each have our own bar and a selection of alcohol and masks

everythings taxable :-(

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Giraffe
By Luke
13th Jan 2021 12:06

Just a quick update.

Calculations are all done and there is no taxable gain so therefore no return was due and no penalties - phew!

Thanks to everyone for their help. I have since been through and categorised all clients with different income streams so that I can easily send out relevant updates to targeted clients, which will avoid the odd one slipping through the net like this.

All property clients have now been told or reminded about this.

Thanks again to all, it helped me realise it would not have been completely my fault, others should probably have told them too. Also that I am only human and things get missed from time to time, and I have now put in some systems to help avoid it happening again. Win win.

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Replying to Luke:
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By Youareatit
13th Jan 2021 17:13

Makes a change to get an update on such things. Good on you Luke!

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