HMRC has introduced an online system for individuals to report capital gains and pay any CGT due. Is this part of MTD for individuals which has snuck in under the radar?
HMRC launched the online CGT service very quietly in October 2016, as an add-on to the online personal tax account (PTA). It is designed to allow taxpayers to report capital gains and losses close to the transaction date, and pay the tax they owe straight away. Why an individual would want to pay their CGT straight away, rather than wait until the due date of 31 January after the end of the tax year, is a mystery to me but I can see it has attractions for HMRC.
The benefit of using the online CGT service, implied by HMRC, is that the taxpayer doesn’t have to report the gain, and all their other income, on a full self assessment tax return. Where an individual has made a one-off gain, perhaps on the sale of a buy-to-let property, that gain can be reported without bringing the taxpayer within the self assessment system. HMRC sees this a win, as it doesn’t want taxpayers in self assessment completing and submitting tax returns unnecessarily.
However, the formal SA tax return exists within a framework of rights and obligations for both the taxpayer and HMRC in relation to penalties, investigations and finality of the individual’s tax affairs.
What is its legal status?
The online CGT service is referred to as the real time capital gains service on the gov.uk page, which attempts to explain CGT, but in the SA108 notes to the 2016/17 and 2017/18 tax returns it is called a “real time transaction return”. However, the real time CGT service is not a tax return in law.
As the online CGT service appears to be part of the online PTA, it must be navigated without the help of an accountant. Tax Agents are not permitted to access their clients’ PTA, so they can’t complete a real time transaction return for their clients.
There are no specific regulations governing when a real time transaction return must be submitted, or the associated issues of amendments, and investigations. The guidance on CGT page on gov.uk says: “You must report by 31 December after the tax year when you had the gains”, - a statement which has no legal standing.
The deadline for reporting capital gains and paying CGT is the 31 January after the tax year end, or three months after the date of a return/ notice issued after 31 October (TMA 1970, s 8(1D-1F)). The deadline is not 31 December. There is a much shorter 30-day reporting deadline for non-residents who dispose of residential property in the UK under the NRCGT rules, but that’s a separate system.
If the taxpayer has submitted a real time transaction return but is also required to complete an SA return for another reason, the gain or loss must also be reported on the SA return. The SA tax return should include the reference number for the real time transaction return already submitted and report the CGT already paid through the real time CGT system.
If the taxpayer is not already within self assessment, they are required to inform HMRC by 5 October after the tax year end that they have a tax liability to report, or losses to carry forward (TMA 1970, s 7(1)). This can be done by completing form SA1 online, by posting a completed paper SA1, or by calling the self assessment helpline on 0300 200 3310. When HMRC issues the taxpayer with an SA return or a notice to complete an SA return online, after 31 October following the tax year, the return must be submitted to HMRC within 3 months of its issue date.
The CIOT, ACCA, ICAS and ICAEW Tax Faculty have confirmed that there has been no consultation with the professional bodies about the real time transaction return. It has not been discussed as part of the MTD or personal tax account meetings, so it is unclear how the real time transaction return fits in and around the SA system, or as part of MTD.
Jason Piper, senior manager tax and business law with ACCA commented: “We share concerns about the statutory basis for the current system. Without that fundamental legal basis for a coherent suite of tools to allow taxpayers and their advisers to engage with HMRC, we are going to see more ‘grey area’ cases end up at Tribunal, and that’s bad for taxpayers and the tax system.”
So from this tax writer’s point of view, it would be good to know:
- Whether using real time CGT absolves the taxpayer from their obligation to report the gain or loss to HMRC. If this point is not resolved, the taxpayer remains vulnerable to a penalty for failing to notify a liability.
- How will enquiries into real time transaction returns be undertaken? And what is the deadline for opening such an enquiry?
- Can the real time transaction return be amended, and if so by what date?
- Why has HMRC set a deadline of 31 December after the tax year end for completing the real time transaction return?
- What happens if the taxpayer has paid too much tax by way of the real time transaction return – how do they secure a refund?
- Why have tax agents been locked out of the real time transaction return system?
Agent access to the PTA is supposed to be solved under MTD, and perhaps the MTD for income tax pilot will show us how this will be done.
In the meantime, please let us know how your clients get on with real time transaction returns, and whether this online system is causing problems when you submit the full SA return for your client.