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Missed CGT report

Just found out client sold a residential property over 15 months ago

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I have just come to do a clients 20/21 tax return and it transpires they sold a residential BTL in July 2020. CGT would be due. No 30 days report was made and no tax paid. Whats the best option now - just put it on the SA return and pay the tax in the normal way ?

Replies (77)

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By ireallyshouldknowthisbut
15th Oct 2021 14:32

Put it on the SA and see what happens.

if you file the 30 day report and pay you will get an auto-fine which you may or may not appeal successfully.

I don't think HMRC have the manpower or will to bother to fish for the fines unless you drop them in their lap, and there is currently a push to scrap it anyhow from the ICAEW and others and if that happens I cant see HMRC will bother setting up a new system to reconcile both parts.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
15th Oct 2021 16:02

That is undoubtedly the best pragmatic advice (I'm not sure about the "no doubt" comment below), but isn't it crazy that HMRC's bonkers over-complicated systems means we are forced to give such advice in the 1st place?

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By cathyne
15th Oct 2021 14:35

If it was after April 2020, the online CGT return has to be completed and submitted and the CGT paid. HMRC will no doubt impose penalties.
A failure, possibly, by the solicitor acting for your client to inform your client of the need to make the 30 day return.

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Replying to cathyne:
By kenny achampong
15th Oct 2021 20:05

I filed one late because the solicitors were working from home and so doing a completion statement took 2 months, which is pretty normal nowadays, and no sign of any penalties so far. What an incredible cheek HMRC have doing this in the first place when I'm doing the rounds of sending third copies of letters that have been ignored for 5 or 6 months.

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Replying to kenny achampong:
Tornado
By Tornado
15th Oct 2021 22:38

"when I'm doing the rounds of sending third copies of letters that have been ignored for 5 or 6 months."

One of my biggest gripes with HMRC is that they sometimes never answer or even acknowledge letters so problems just keep rumbling on, and for an organisation that wants to be digitally centric, you cannot even communicate with them by email.

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Tornado
By Tornado
15th Oct 2021 15:59

There must be thousands of people who should have submitted 30 day reports but did not because they did not know they had to or knew how to.

As with MTD, rules will only be abided by if they are clear to understand and reasonably easy to comply with and we are surely moving towards a situation where everything is so complex that people will just ignore the rules, and the authorities will not be able to do anything about it.

Keeping things simple and easy to understand will usually produce better results than complex procedures that no one understands and do not then care about. Simple is easier to enforce and everyone knows where they stand.

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Replying to Tornado:
Psycho
By Wilson Philips
15th Oct 2021 16:40

Whilst I agree with almost everything you say, especially re keeping things simple, I'm not so sure about your first sentence.

Almost every property sale will involve the services of a solicitor and any solicitor worth his salt ought to be aware of the rules - if they are not, then I would blame the Law Society for not educating their members accordingly. It may not be the solicitor's responsibility to complete and file the return but I would say that they have a duty to at least advise their clients, just as they already do with SDLT etc returns.

FWIW, I agree with the advice at the top of the page (and thus with Justin - twice in one day ;) ) - just return the gain on the SATR and pay the tax by the normal due date.

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Replying to Wilson Philips:
Tornado
By Tornado
15th Oct 2021 18:05

"Almost every property sale will involve the services of a solicitor and any solicitor worth his salt ought to be aware of the rules - if they are not, then I would blame the Law Society for not educating their members accordingly. It may not be the solicitor's responsibility to complete and file the return but I would say that they have a duty to at least advise their clients, just as they already do with SDLT etc returns."

Whilst I agree with what you say, I have doubts as to whether Solicitors would emphasise the need to submit a 3o day Return and the situation would be even worse for them if there were any delays by them that made it difficult or impossible for the client to make the Return on time. So although technically whilst clients may have been informed of the need to make a 30 day Return, this message may not get through to the client.

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By fawltybasil2575
16th Oct 2021 13:35

@ seitler (OP).

I must respectively disagree the vast majority of the responders above, in advocating being complicit in legislation breaches.

Firstly, I fully accept that the Chancellor (and his henchmen) and HMRC have both been severely at fault for (i) the nature of the legislation and (ii) its operation. However, “two wrongs do not make a right”.

Crucially, advising a client to (a) be in breach of the legislation or (b) fail to correct such breach, (i) is unethical and (ii) more importantly, can result in disciplinary action by one’s governing body and/or a claim for negligence by the client.

The stance of “let’s not bother correcting the legislation breach as it might save you some interest and/or avoid the imposition of penalties” is akin to advising a client not to “bother” reporting undeclared income to HMRC as they “will very probably never find out”.

One has to maintain standards of integrity, not sink to a “lowest common denominator” approach.

Frankly, adopting a robust stance towards HMRC, if they seek penalties (by firmly reminding them that the vast majority of qualified property lawyers are clearly blissfully unaware of the new legislation, so it is unreasonable to expect lay persons to be aware of it) should persuade HMRC to abandon pursuit of payment of penalties.

In the unlikely event that HMRC are uncooperative in that regard, I would be almost certain that the FTT would accept penalty appeals (and have harsh words towards HMRC to boot).

Having criticised property lawyers above, I am compelled to say that accountants in practice should have, when the legislation was introduced, taken a proactive line, and circularised ALL clients (for whom one believed did hold, or might hold, residential properties).

Such circular letter, as I have stated in a previous thread, should have asked for full details of property owned by the client (acquisition details, enhancement expenditure subsequently etc.) since such information would be promptly needed in the case of a future sale. That letter should of course also have requested the client to later notify you as and when a property sale was proposed (inasmuch as one might be able to provide advise which would reduce the CGT liability arising from disposal).

The necessity to obtain details of assets held should also have been complied with, at the start, when accepting instructions to act.

Basil.

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Replying to fawltybasil2575:
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By Justin Bryant
16th Oct 2021 16:23

You're quite wrong.

For example, if your client had failed to disclose a DoTAS scheme 5 years and 363 days ago (e.g. due to LAP the client was obliged to disclose and not the tax lawyer), you would be a fool to tell him to disclose it now, late.

The undoubtedly best pragmatic advice is to tell him to do nothing and wait 2 days and then the 6 year time limit will eliminate all penalty risk, whereas if he disclosed under your advice he would have a life-changing penalty bill.

This CGT late filing penalty issue is no different in principle to that DoTAS penalty example and to correct you; no-one is advocating not disclosing the actual CGT disposal in a SA100 and facing any penalty consequences then.

If you disagree, please confirm why the DoTAS penalty example is different and if you would actually advise a client to disclose their DoTAS scheme late 2 days before HMRC's 6 year penalty time limit and if so why.

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Replying to fawltybasil2575:
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By paulhammett
16th Oct 2021 17:50

Forgive me Basil, but life's too short. Sometimes being pragmatic is the preferred way forward.

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Replying to fawltybasil2575:
Psycho
By Wilson Philips
16th Oct 2021 19:25

I don’t believe that anyone was suggesting that advisers should be complicit in legislation breaches.

The fact is that there has been a breach of legislation here, the issue is how that breach might be most efficiently remedied. In my view, returning the gain on the tax return is the most pragmatic remedy. To suggest that that would make me complicit in the taxpayer’s breach is, frankly, bollox.

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Replying to fawltybasil2575:
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By Homeworker
25th Oct 2021 11:07

fawltybasil2575 wrote:

@ seitler (OP).

Having criticised property lawyers above, I am compelled to say that accountants in practice should have, when the legislation was introduced, taken a proactive line, and circularised ALL clients (for whom one believed did hold, or might hold, residential properties).


I did this, but have still had clients who have failed to inform me in time because the solicitors have not advised them about it and they have forgotten about my circular. I would not advocate bypassing the new reporting requirement but will not be taking any £100 penalties to tribunal, as the cost would be more than the saving.
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By fawltybasil2575
16th Oct 2021 21:35

@ Paul.

I am always happy to recognise contrary views, when expressed so courteously.

@ Wilson.

With respect, it is not the breach itself which is the issue for consideration when deciding on the appropriate action, since such breach has by definition already occurred.

Instead, the matter for consideration is whether the appropriate action is to recommend the client to take NO ACTION (see below, re the two different Acts in play) re that specific legislation breach; or whether alternatively to recommend ACTION (ie submitting a late notification).

In taking the “NO ACTION” route (re the Finance Act 2019) one:-

(i) lessens the client’s exposure to penalties (notwithstanding the comments in my previous post re the very good prospects of their being held not payable) and

(ii) removes the possibility of both (a) legal action by the client against oneself, and (b) disciplinary proceedings against oneself by one’s governing body.

One must recognise that there are two quite SEPARATE (albeit of necessity linked) pieces of legislation at issue, namely (a) TCGA 1972 and (b) Finance Act 2019. Hence, intentionally breaching the latter on the grounds that one intends to comply with the former is IMHO the wrong option.

I trust that I have responded to your closing sentence (as I have tried to explain, it is complicity with a “NO ACTION” stance which is the issue)

Basil.

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Replying to fawltybasil2575:
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By Justin Bryant
17th Oct 2021 09:04

Basil, with respect, it ain't as simple as saying no action re a penalty breach is necessarily wrong and risks regulatory sanctions and negligence claims, as the following example shows.

Accounting firm A advises its client who should have disclosed a DoTAS scheme to HMRC 5 years and 363 days ago (e.g. due to being advised by a tax lawyer so legal privilege applied to cause the disclosure obligation on the client) to disclose it late to HMRC, as it has just read your post re CGT late filings and is now terribly worried for the reasons you give. The client accordingly gets a life changing (6 figure) DoTAS penalty and so considers suing you and making a complaint to your regulator and you have to spend time and costs dealing with all that.

Accounting firm B rightly ignores your comments and takes the pragmatic approach of telling the client to DO NOTHING and sure enough 2 days later HMRC are time barred re any DoTAS penalties. The client and the firm have sensibly avoided a catastrophe and their lives proceed as normal.

Discuss.

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Replying to fawltybasil2575:
By ireallyshouldknowthisbut
17th Oct 2021 14:54

@Basil, I hesitate in taking an issue with your comments given the far deeper understanding that you have than on regulatory or legal matters but I don't see our role extends to deliberatively triggering penalties when there is another legitimate manner in which the client can pay the right amount of tax. There is after all full disclosure to HMRC. Nothing is hidden, they can take issue with the missing 30 day report if they so choose.

Our role as advisors is surely to identify the options available and help our clients choose which to take. Blindly leading a client to penalties which are potentially avoidable would I suggest be more likely to result in a claim against you from the client or a governing body than taking a pragmatic approach.

In this specific case there is nothing really to gain by filing the 30 day report that I can see. Had the op suggested that the report was upto 6 months late the pendulum would no doubt swing towards a late filing given the £100 penalty would seem a good insurance policy against a potential £700 or more.

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By fawltybasil2575
17th Oct 2021 16:42

Please allow me to more blunt. It is NEVER appropriate for an accountant to recommend to a client to continue to retain monies which should have been paid to, and thus should now be in the possession of, any third party (in this case HMRC) where those monies have derived from a breach of legislation (in this case the Finance Act 2019).

If, for example, in the case at issue, the breach of that legislation results in the client’s holding monies (the tax which should have been paid) and the client then uses those monies to generate income (say the purchase of an item which is then sold at a profit of £20K) that client is guilty of a criminal offence. The, albeit temporary, use of monies to which one is not entitled, holds the key. The intention to continue to withhold monies improperly held is CRITICAL.

Let us consider another scenario. The tax withheld from HRMC, due to a breach of FA 2019, re a property disposal in May 2021, is say £30K. The accountant is made aware of this in say September 2021 but advises the client not to rectify the breach. In December 2021, the client suffers a CGT loss, which results in the ultimate 2021/22 CGT being Nil. The client receives no demand from HMRC for CGT, of course, and the accountant remains passive, and complicit in the client’s having obtained improper use of the ££30K. The client and the accountant are BOTH on the hook.

I could go on, but I can only respectfully point out again that the failure to advise the client to rectify a breach of legislation is NEVER EVER the right course of action (deemed “pragmatism” can never overturn that fundamental principle). Running throughout all legislation (civil and criminal) is the need to have hands as clean as can be.

May I assure Ireally.... that one can never, as an accountant, be successfully sued for negligence for recommending a client to comply with legislation, or recommending a client to rectify any previous breach of legislation (again, entirely notwithstanding any element of deemed pragmatism).

Basil.

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Replying to fawltybasil2575:
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By Justin Bryant
18th Oct 2021 09:42

Basil, firstly, some of my comments which strongly disagreed with you went into Aweb's wonderful new blackhole screen freeze (moderation?) and may appear later (if so, garbled I expect), but if not never mind. Restricting my comments to your latest comment, with respect, that cannot be right. For example, clients regularly delay paying SDLT (for say, 12 months or more if they can get away with it) and so are in deliberate breach of the 14 day SDLT payment deadline legislation (to be clear, they are not otherwise in breach of anything, having duly filed a correct SDLT1 within 14 days of completion). There is no SDLT geared late payment penalty; merely (very low) interest and I have advised clients that that's all fine (assuming no lender objects) and as far as I'm aware no-one is after me or the clients re that. Same with CT I think. What's wrong with that approach if they want cheap financing off HMG?

If a client suddenly and urgently needed that short term financing (with no other options) and you wrongly told him it wasn't possible to delay the SDLT payment etc., then I see no reason why you couldn't be sued for negligence if that caused him foreseeable losses etc., since an expert like me would confirm in court against you that it was all fine as cash-flow planning.

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By SteveHa
18th Oct 2021 10:57

At the risk of supporting an unpopular opinion, I'm with Basil on this.

It is our job to help the client comply with the law, and no matter how pragmatic you think ignoring the law may be, by failing to properly advise the client we expose ourselves.

Where a client has made a failure, I will always advise remedying that failure rather than ignoring it and remedying what is, otherwise, a different matter. Making good the tax at a later date does not excuse the failure to comply with legislation in the first place.

But, of course, I'm not a member of a PB, so I'm considered to be a cowboy who will do all I can to get my client of the hook, and of course no PB members would ever do that!

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Replying to SteveHa:
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By Justin Bryant
18th Oct 2021 11:27

So, you would equally deliberately cause a totally unnecessary, avoidable, life-changing DoTAS penalty for your client in my above DoTAS penalty example? If not, why is that DoTAS penalty example different to this potential CGT penalty (surely not just coz one is a 3 figure penalty and the other is 6 (or potentially 7) figures)?

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Replying to Justin Bryant:
By SteveHa
18th Oct 2021 12:16

So you honestly think 2 days time barring, or the amount involved, justifies breaking the law?

If one of your clients happened to mention that he had murdered someone last week, would you be equally blase?

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Replying to SteveHa:
Psycho
By Wilson Philips
18th Oct 2021 12:43

I see a distinction between the CGT issue and Justin’s DOTAS example. In the former, no-one is advocating helping the client to avoid tax. What has been suggested is a pragmatic means of dealing with the issue.

If an adviser becomes aware of an obligation to notify under DOTAS then he is duty-bound to advise his client to notify within the appropriate time limit. Failure to do so would expose him to MLR/CFA consequences.

Why is that different to the CGT case? Well in that case the failure to comply with relevant time limits had already occurred. But it is possible to fully rectify the failure by other means and within other time limits. What Justin is suggesting is assisting a client to avoid penalty by deliberately failing to comply with statutory requirements. Hmmm …

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Replying to Wilson Philips:
By SteveHa
18th Oct 2021 13:11

Wilson Philips wrote:

Why is that different to the CGT case? Well in that case the failure to comply with relevant time limits had already occurred. But it is possible to fully rectify the failure by other means and within other time limits.

I beg to differ, Meeting other time limits does not rectify the failure to meet the initial (legislated) time limit. What you are talking about is not rectification, it is circumvention.

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Replying to SteveHa:
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By Justin Bryant
18th Oct 2021 13:23

The murder example is hardly analogous is it? My DoTAS penalty example is analogous.

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Replying to Justin Bryant:
By SteveHa
18th Oct 2021 14:41

Really? So you selectively choose which laws are relevant, then?

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Replying to SteveHa:
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By Justin Bryant
18th Oct 2021 15:07

You are basically obviously wrong if you think murder is analogous!

For your benefit, see here the LITRG saying you can ignore tax law if you like re SA100 obligations & penalties. That is also analogous.

"We do not believe that this legal requirement extends to notify HMRC of a non-existent liability to income tax, capital gains tax, or Class 2 or 4 National Insurance contributions – in other words, where you do not owe anything to HMRC. In any case, there can be no penalty for not doing so. For example, you may have gross trading income of £5,000 (with no expenses) and no other income or gains in a tax year. Although your trading income would exceed the trading allowance, there would be no tax or National Insurance due on this income because it does not exceed the relevant thresholds."

https://www.litrg.org.uk/tax-guides/tax-basics/self-assessment-understan...

See HMRC's contrary view here: https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

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Replying to Justin Bryant:
By SteveHa
18th Oct 2021 15:17

Justin, at the risk of teaching Grandma to suck eggs, the LITRG article explains what the law says (TMA 1970 S7) whilst HMRC guidance explains their view (which is widely touted to be wrong).

Not doing what HMRC think you should do is not the same thing as not doing what the laws says you should do, and you should know and appreciate that, otherwise you have no business advising clients.

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Replying to SteveHa:
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By Justin Bryant
18th Oct 2021 15:40

HMRC's view of the law here is strictly speaking correct (despite what you may have read on Aweb or elsewhere) and LITRG would not justify the potential law breach by saying no penalties are due unless it was at least a potential tax law breach in the 1st place (and the fact that HMRC clearly disagree with that view and LITRG know it is all the more telling re this point and presumably LITRG would not give such advice if there were a £100 fixed penalty rather than the PLR-based penalty). In any event, I consider that a pretty good "pragmatic" analogy and infinitely better than your murder one!

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Replying to Justin Bryant:
By SteveHa
18th Oct 2021 15:42

HMRC's view is not correct, strictly or otherwise. Nowhere in the legislation, for example, does it say you must complete a Return if you were, "self-employed as a ‘sole trader’ and earned more than £1,000", nor indeed, if you were a partner.

In fact, interpreting the law strictly, not a single one of the listed conditions compels anyone to submit a Tax Return. The only compulsion is if HMRC have issued a notice to file.

And please don't assume that I know what I know from AWeb. I know what I know because I spend a lot of my time with my nose in the legislation.

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Replying to SteveHa:
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By Justin Bryant
18th Oct 2021 16:04

Even if that's right, you have overlooked my point that LITRG are aware (and accept) that HMRC disagree with them and that presumably the same "pragmatic" advice would not be forthcoming from LITRG if there was a £100 fixed penalty (as their guidance is premised on there being no PLR penalty in practice). How do you answer that ?

Even if that's all wrong, what about my other DoTAS penalty example?

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Replying to Justin Bryant:
By SteveHa
18th Oct 2021 16:00

You overlook my point that the 30 day CGT Return is not a matter of HMRC discretion or interpretation, it is a matter of law, and so pragmatic or not, the correct thing to do is to correct the failure, and not try to work around it.

This is pure fact, regardless of what "examples" of other failures you present.

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Replying to SteveHa:
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By Justin Bryant
18th Oct 2021 16:18

You've sidestepped things, as LITRG implicitly assume that HMRC's view is right; otherwise there is no need for such a pragmatic "do nothing as no PLR penalty" solution in the 1st place.

I'll end there and note you've also ignored my SDLT late payment example.

The fact that you have to give crazy murder examples to justify things speaks for itself.

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By fawltybasil2575
18th Oct 2021 12:31

@ Justin.

Re your 9.04 (17/10/21) post (which, as your 9.42 post today advises, only appeared today for the reason you indicate) I strongly disagree. Firstly, all accountants are at risk of improper PI claims and/or disciplinary action by their governing body, regardless of their standards of work and ethical standards. Any perceived risks in that regard should NOT dissuade the accountant from complying with the highest ethical standards.

Any self-respecting legal advisor would discourage a client from taking action against the accountant, in the scenario postulated by you, since they would be exposing their client to almost certain unnecessary costs of failed action (and indeed the risk of reciprocal action).

If and when time permits I shall respond to your 9.42 post.

@ Wilson.

Basil is as ever unable to engage at your level of debate (your post at 22.46 on 17/10/21 refers).

Basil

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Tornado
By Tornado
18th Oct 2021 13:23

I think this is a one of those many matters that does require some professional discretion as there are often far reaching consequences of abiding by the letter of the law such as involving the lawyers who did not provide the necessary information on time and thus the individual was not able to make the Return within the 30 days. These 'consequences' can be very time consuming and expensive to deal with and do not necessarily correct the original mistake.

In the (not so long ago) old days, the qualified Auditor gave an opinion based on the Statutory Accounts presented to him/her and that opinion was respected and not questioned.

There still has to be a certain amount of Professional Discretion these days otherwise the whole system will come to a standstill with everyone engaged in disputes, so there has to be a line where trying to enforce compliance for the sake of it will not be productive whereas trying to correct the situation in a more pragmatic way would be better for all. Obviously there cannot be any complicity in fraud but genuine efforts to correct mistakes must be the best solution for everyone in many circumstances.

I would also add another moral dilemma that affects us all and clearly highlighted yesterday on my trip to Suffolk. There are clear signs on the A13 showing that the speed limit has been reduced to 50 miles per hour for roadworks. I do abide by the speed limits and in 5o years of driving I have never had a conviction for anything, especially not for speeding. I find, however that almost everyone else did not slow down to 50mph but continued at speeds significantly more than this, and for all I now, those reading this post also regularly disregard the speed limits. As a law abiding citizen, am I expected to send a dashcam file to the police on a daily basis so that they can follow up these crimes (as indeed exceeding the speed limits is a crime).

The answer to this is no, I do not have a dashcam and I do not report speeding crimes so I am doing wrong by not reporting them .... am I a bad citizen for knowing about crime and not reporting it?

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Replying to Tornado:
By SteveHa
18th Oct 2021 13:14

driving offences are not covered by PCRT.

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By fawltybasil2575
18th Oct 2021 13:07

For the avoidance of doubt, when stating, in my 16.42 post on 17/10/21 that, in relation to the OP’s question, if:-

“the client then uses those monies to generate income (say the purchase of an item which is then sold at a profit of £20K) that client is guilty of a criminal offence”,

such comment was of course based on the premise that the client was AWARE that they had breached the Finance Act 2019 legislation (and was thus aware that they were holding monies to which they were not legally entitled).

The OP should also consider their Money Laundering obligations (and act accordingly) if the client declines to remedy the situation (regardless, for the avoidance of doubt, of whether the “generate income” future scenario applies).

Basil.

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By Justin Bryant
18th Oct 2021 13:54

Interesting that I disagree with both WP and Basil re my DoTAS penalty example. You would both be negligent to advise a client to disclose under DoTAS in such circumstances in my view under Mehjoo-type case law and I doubt an expert witness could be found to support your contrary view and even if they could I expect they would be laughed out of court if they supported your view that you should not bother telling the client they will be scot-free of a life changing penalty by simply doing nothing for 2 days and should instead disclose it ASAP (in fact, more or less immediately to beat HMRC's 6-year penalty time limit) in such circumstances.

As for my SDLT deliberate late payment example, not since the days of Charles Dickens have we had debtors' prisons and the link below is all HMRC can do re late payment:

https://www.gov.uk/guidance/what-will-happen-if-you-do-not-pay-your-tax-...

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Replying to Justin Bryant:
Psycho
By Wilson Philips
18th Oct 2021 16:18

You seem to be confused, Justin - perhaps due to lack of clarity on my part. At its simplest, Mejoo was about a failure to advise on, or implement, a tax avoidance scheme. It was not about the legal obligations or the taxpayer or his agent.

I never suggested not telling the client about how a penalty might be avoided.. I don’t have a problem in advising that if notification is not made by dd/mm/yyyy then HMRC’s opportunity to raise a penalty will be gone. However, as a professional adviser the advice must be to comply with the legislation and notify. If the client chooses not to disclose then the agent may consider his next steps. I disagree that the agent should advise his client not to comply with statutory obligations.

I will never advise a client not to pay CT on time. I will though advise on both the advantages and disadvantages of non-payment and the client can then make an informed decision. There is a difference.

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Replying to Wilson Philips:
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By Justin Bryant
18th Oct 2021 16:31

No. Mehjoo-type case law is about PI claims against tax advisers for giving negligent advice that causes foreseeable losses. The exact nature/cause of the loss (that was otherwise avoidable) is irrelevant. In this case it's an easily avoidable 6 (or 7) figure DoTAS late filing penalty. Any tax expert witness would agree it was easily avoidable by simply doing nothing for a couple of days.

You are sidestepping the point. Would you tell a client to hurry up and disclose by CoB tomorrow to beat HMRC's 6-year deadline? Yes or no? (We all know you would not actually do that in practice, despite what you may say here.)

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Replying to Justin Bryant:
Psycho
By Wilson Philips
18th Oct 2021 16:32

I’m not sidestepping anything (and it is rather arrogant of you to say that you know what I would do). I have already explained what I would do - I would tell my client that if he does not notify by [date] then HMRC may find themselves out of time to do anything about it, but at the same time remind the client of their legal obligation. I would not advise my client to do one thing or another - the purpose of the advice, as with much tax advice, is to enable the client to make an informed decision.

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Replying to Wilson Philips:
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By Justin Bryant
18th Oct 2021 16:46

No sh*t. In other words you would simply let your client "read between the lines" and he would then pat himself on the back for making such a no-brainer decision!

The fact that you would not positively and earnestly tell him to disclose immediately (and resign and all that if he doesn't) confirms I'm right.

Your point about CT is irrelevant. Obviously none of us go around telling clients not to pay tax. I'll end there.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
18th Oct 2021 16:52

So you’re going to advise your client of his legal obligation and then advise him not to comply with that legal obligation.

I’ll end there.

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By justsotax
18th Oct 2021 17:32

I understand the pragmatic approach (although its not one I had considered)....however in the face of an enquiry into the late reporting of the gain I wonder what reasonable excuse (if any) someone could suggest. This method of addressing the problem appears to remove any possible 'reasonable excuse' claim by proceeding to actively not make the declaration in line with legislation......

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Replying to justsotax:
Psycho
By Wilson Philips
18th Oct 2021 17:51

I’m not saying that this would work, but:

Let’s say that it is accepted that a reasonable excuse was that the unrepresented taxpayer was unaware of the requirements, his lawyer had failed to advise him of those requirements etc.

What exactly is the failure? Accepting that it is the failure to comply with a specific piece of legislation, the general failure is not to return the gain and pay the tax. Amending my previous comments, I would argue that the taxpayer could reasonably argue that to remedy the failure he could file his SATR, and pay the tax, now. The exact default may not have been rectified but the failure to return the gain and pay the tax would have been. So, yes, I am pulling back slightly and suggesting that he should not wait until 31 Jan to pay the tax. If he is not in a position to file the SATR yet then yes again I would recommend filing the CGT return.

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Replying to Wilson Philips:
By ireallyshouldknowthisbut
18th Oct 2021 18:10

@WP, in the two occasions I have been instructed by clients to file the SA return only as the report was missing (both overseas landlords), and not trigger the penalty, I also advised the client to settle the whole of their SA liability immediately so as to stop any interest running. Both of these were for I think 19/20 returns but might have been a year earlier.

It is surely implicit if you "do the wrong thing", that you tell your client what the right thing is, the implications of doing the right thing, and await their instructions.

To deliberately trigger penalties seems to be failing the client in trying to get them out of whatever mess they are in with the least amount of time and cost.

Every case I have see at FTT involved late filing of the 30 day report. There was a flurry of those when this first become mandated for overseas landlords. If you recall HMRC were gunning for daily penalties initially which was withdrawn. I don't recall a case in which no report was made.

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By seitler
18th Oct 2021 18:16

I seem to have triggered quite a debate. Thank you all for your replies. I think the most sensible way to proceed is to complete the Sa with the CGT on there and warn the client of the pros and cons of making the additional CGT report now late and let him decide. I doubt they will want us to submit the report especially as I think in all likelihood seeing as the gain is quite small and HMRC are so short staffed they are unlikely to pick it up. But I am giving the client the option of completing the forms should they want to

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Replying to seitler:
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By paulhammett
18th Oct 2021 20:03

We accountants do like a good healthy exchange of opinions.

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Replying to seitler:
By ireallyshouldknowthisbut
19th Oct 2021 09:55

That what we have done in the past.
My initial post was a little more casual than intended, but clearly you would tell the client what the right thing to do is, and the implications of doing it.

Upto them what they ask you to file. You act on their instruction after all.

Its quite possible of course HMRC will blitz the lot of these at some point but it could be years, could never happen and if they do it could all fall over at the FTT and they then have to withdraw it all again as with the daily penalties.

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By richard thomas
18th Oct 2021 22:34

I am not in a position to comment on the professional or ethical issues involved here, and will not. What I can do is pick up on some legal points raised.

In the OP there seems to be an implicit suggestion that making a s 8 TMA return to include the gain is an alternative to the 30 day report. It isn’t – all gains must be included in the s 8 return, but any tax paid under the FA 2019 rules will be set off like income tax payments on account. Sorry if that was not was intended to be implied.

Failure to make a 30 day return and pay the CGT opens the client up to penalties under Schedule 55 FA 2009 (late filing penalties) though only the £100 and 6 months one. Late payment penalties do not apply as long as the CGT is shown in the return. The usual exclusions (reasonable excuse (RE) & special circumstances) may apply. In a typical case (based on my experience of NRCGT penalties) the client will have an RE because they were blissfully unaware of the FA 2019 rules and their solicitor will not have told them (see my decision in McGreevy and others). But if their accountant tells them they have failed to make the return, any RE based on ignorance ceases and the failure to make the return must be rectified within a reasonable time to avoid the penalties. (I agree then with justsotax at 17:42 today)

If a person does not pay the CGT within 30 days then interest starts runs on the unpaid amount. HMRC can of course only charge interest on unpaid tax they know about, so the proposal just to notify the CGT in the s 8 return and pay by 31 January does not stop an exposure to an interest charge if HMRC discover what happened.

There seems to be a school of thought that HMRC won’t pick the lack of a 30 day return up. Whether they do does not depend on the acuity of officers but on the programming of HMRC’s risk assessment tools. HMRC won’t have created a separate set of boxes on the CG108 for residential property for nothing, so if someone enters the gain in box 6 but puts 0 in boxes 9 and 10 they may well find that the return is enquired into to check why no gains or tax are in those latter boxes and find themselves liable to interest and penalties.

What I fail to understand however is how any person who does what the OP suggests is committing, as Basil says in his post of 17 October @16:42 (and follows up at 13:07 today), a criminal offence. What offence?

As to Justin’s post of 15:07 today, I think what he says is a travesty of what LITRG are saying.

The passage in the LITRG page that starts “We do not believe …” is, as SteveHa suggests, based on their interpretation of s 7(7) TMA. I agree with that interpretation, but I could be persuaded that it’s wrong. I would though like to know for what reason HMRC put it into the law in 1994, but I don’t have the Notes on Clauses for that year’s bill.

To say that LITRG are, by stating what their view of the law is, condoning people ignoring “tax law re SA100 obligations” is nonsense (for among others the reason SteveHa gives in response). The HMRC webpage that Justin links to does not address the issue at all (so cannot be “strictly speaking correct” at last in relation to s 7(7)). As has been said, no one needs to file a return unless they are sent a notice to file. If a person’s only income is trading profits of £5000 and they have not had a notice to file, then if they take the view that there is nothing to notify under s 7 because of s 7(7) they are under no obligation to tell HMRC that they are taking that position. If HMRC find out (eg from a later registration for self-assessment) that they were trading in a pre-registration year then no penalty can be assessed because there is no PLR. It seems the officials behind Schedule 41 FA 2008 realised that by making Schedule 41 penalties tax-related they were making the penalty law chime with the LITRG interpretation of s 7(7) TMA.

And where is it clear that LITRG accept that HMRC are right? They are making it clear that even if they are wrong (a pedantic barrister pleading would add in parenthesis “which is denied”) there can be no penalty. That’s not the same as agreeing with HMRC that they are wrong about s 7(7).

As to Justin’s final comment in his post of 13:54 today, while the Marshalsea has gone, imprisonment for debt is still on the statute book – see ss 4 and 5 Debtors Act 1869, and especially exception (1):

“4 Abolition of imprisonment for debt, with exceptions.

With the exceptions herein-after mentioned, no person shall be arrested or imprisoned for making default in payment of a sum of money.

There shall be excepted from the operation of the above enactment:

(1) Default in payment of a penalty, or sum in the nature of a penalty, other than a penalty in respect of any contract:

(2) Default in payment of any sum recoverable summarily before a justice or justices of the peace:

(3) Default by a trustee or person acting in a fiduciary capacity and ordered to pay by a court of equity any sum in his possession or under his control:

(4) Default by a solicitor in payment of costs when ordered to pay costs for misconduct as such, or in payment of a sum of money when ordered to pay the same in his character of an officer of the court making the order:

(5) Default in payment for the benefit of creditors of any portion of a salary or other income in respect of the payment of which any court having jurisdiction in bankruptcy is authorized to make an order:

(6) Default in payment of sums in respect of the payment of which orders are in this Act authorized to be made:

Provided, first, that no person shall be imprisoned in any case excepted from the operation of this section for a longer period than one year; and, secondly, that nothing in this section shall alter the effect of any judgment or order of any court for payment of money except as regards the arrest and imprisonment of the person making default in paying such money.

5 Saving of power of committal for small debts.

Subject to the provisions herein-after mentioned, and to the prescribed rules, any court may commit to prison for a term not exceeding six weeks, or until payment of the sum due, any person who makes default in payment of any debt or instalment of any debt due from him in pursuance of any order or judgment of that or any other competent court.”

The Debtors Act extends only to England & Wales, so I do not know the position in Scotland or Northern Ireland.

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By fawltybasil2575
19th Oct 2021 02:08

@ Richard Thomas (your 22.34 post yesterday).

Forgive the brevity of this post please at this late (early ?) hour.

I have not studied your comprehensive post in detail but, from a preliminary reading, your views overall appear to agree with my own.

I note your reference to my previous two posts, however, such reference disagreeing my view that there is a potential criminal offence at issue. Whilst, in practical terms, criminal proceedings are very unlikely (civil proceedings being the norm) “tax evasion” (which may indeed be at issue) IS a criminal offence.

The Fraud Act 2006 is, certainly theoretically at least, in play. Intentional underdeclaration of Tax may also result in action under S.106A TMA 1970. I trust that such legislation references answer your “What offence ?” question (your 6th paragraph refers) - if time later permits I shall endeavour to expand.

Furthermore, and again acknowledging that, in practice, criminal proceedings are very unlikely, the mere fact that the accountant elects NOT to take the PROACTIVE line (of advising the client to RECTIFY the breach of legislation) renders that accountant at greater risk of (i) disciplinary proceedings (by their governing body) and (ii) legal action by the client - to reaffirm, it is the accountant’s not DISASSOCIATING himself from the client’s decision (not to rectify the failure to notify HMRC) which increases his exposure to that “risk”.

[I appreciate that, in your opening paragraph, you advise that you are not commenting on such professional/ethical matters].

Basil.

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