Why HMRC should take lessons from the Scouts

Benjamin Franklin is credited as saying: “By failing to prepare, you are preparing to fail”. This has been reheated many times as a guiding principle in numerous management textbooks, but it is still relevant today.

Another version of the same philosophy is the British Army adage: “Proper preparation and planning prevents poor performance”.

Please plan properly

In recent years a number of changes to UK administration have been introduced in a hurry without sufficient preparation. This has led to problems which could have been foreseen if only the planning had been more detailed, and the ‘what if’ thinking a bit more wide-ranging.

Paying CGT upfront

In 2013 or so I had a brief conversation with a very senior tax adviser about an idea which was being explored in the Treasury: to get property sellers to pay the CGT due within 30 days. I asked how the tax would be collected – would the conveyancing solicitors administer it as they did for SDLT? He thought not, as calculating the CGT would be too complicated for solicitors to deal with.

Which is just the point. Capital gains tax is complicated, particularly when combined with the byzantine reliefs and exemptions that can apply on the disposal of a residential property.

However, just a few years later from 6 April 2015 the Non-Resident CGT return came into being, which required the disposal of a UK property to be reported and any CGT to be paid within 30 days of the completion date. This caught out numerous non-residents who had no idea they were required to submit a separate CGT return so early, so they incurred late filing penalties of up to £1,600. Some of those penalties were challenged at tax tribunal, with varying results. Rachel McGreevy had her penalties cancelled (TC6109), but the Heskeths had their penalties upheld (TC0622).

Learn from mistakes

You would think that HMRC would have learnt the lessons from the introduction of the NRCGT return, when the 30-day reporting regime was expanded to cover gains from all UK residential properties from 6 April 2020. The learning points were clear:

• Communicate the changes to all professionals involved in the transaction well ahead of the go-live date. In this case a huge education exercise to cover estate agents, conveyancing solicitors and accountants was needed but wasn’t carried out.
• Send targeted letters to individuals who have sold properties warning them of their filing obligations. HMRC started to do this in August 2022 as a limited pilot project.
• Provide clear guidance on all the aspects of the CGT computation, written for the taxpayer and accessible in one place.
• Allow tax advisers to complete the return on behalf of their clients, with a workable agent authorisation process. It is particularly important to get this right where the client lives abroad.
• Minimise rather than duplicate the number of interactions the taxpayer has to make with HMRC.
• Make it easy for the taxpayer to reclaim an overpayment of CGT paid, or pay any extra tax due.

MTD ITSA

In many ways, RTI is the model for MTD ITSA, not MTD for VAT.

The requirements for VAT reporting hardly changed under the MTD regime. But under RTI the frequency of payroll reporting in most cases moved from annual to monthly or quarterly, and for MTD ITSA the reporting will increase at least four-fold.

The six learning points from CGT reporting listed above apply equally to MTD ITSA, but there are some additional key learnings to be taken from RTI:

• Have a soft landing for late filing penalties, including a permanent three-day grace period.
• Ensure the tax adviser has access to exactly the same data as the client and HMRC call-handlers can see.
• Introduce the new regime with a lead-in period of several years.
• Test the entire process over several years before making it compulsory for all.
• Encourage taxpayers to sign-up early with monetary incentives.

Sadly, it is not clear that these points are included in the MTD ITSA plan.

Scouting for accountants

AccountingWEB readers were encouraged by the fact that Andrew Griffith, the new Financial Secretary to the Treasury, is a chartered accountant. But I would be more reassured if his biography mentioned that he had been a Boy Scout.

The Financial Secretary to the Treasury traditionally has responsibility for HMRC, so the decision to proceed with MTD ITSA, or delay it, will be in Griffith’s in-tray. It was Mel Stride who made one of the first announcements to delay MTD VAT and MTD ITSA when he was appointed to that role back in July 2017.

If Griffith was a Scout, I hope he took the ‘Be Prepared’ motto to heart and that he will review the preparedness of HMRC, and the small business community, for the implementation of MTD ITSA without delay.