Real time CGT reporting

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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?

Soft launch

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.

Benefits

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.

Actual law

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.

No consultation

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.

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Replies

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20th Apr 2018 16:39

What completely baffles me about this area, is how on earth you are supposed to know how much tax there is due?

A client with a gain may well also have a loss in the same year, but later on.

They may also be paying tax at different rate of CGT depending on their final gross.

How you can have an "real time" CGT system which is largely a secret, and simultaneously be assessed for tax on an annual basis is a mystery to me.

Its very ill thought out. It make a lot more sense to have a simple withholding tax, which then you can get a rebate on if you fill in a tax return/other return. THis would then alert the tax payer to the system, and provide a legitimate revenue stream other than what seems to be not much better than a scam on tax payers to raise penalties and interest by setting up impossible systems, and penalising you if you don't follow it.

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to ireallyshouldknowthisbut
23rd Apr 2018 09:36

ireallyshouldknowthisbut wrote:

It make a lot more sense to have a simple withholding tax, which then you can get a rebate on if you fill in a tax return/other return.

I don't see how this would work. On whom would the obligation to withhold and remit the tax be placed? Bear in mind that CGT can arise on a variety of transactions conducted in a variety of ways, including personal person to person transactions.

A withholding tax would then place an obligation on the seller, probably, which would in many cases be an unreliable mechanism and add unnecessary bureaucracy to what may otherwise be a simple transaction.

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to SteLacca
23rd Apr 2018 14:10

I was thinking mainly of property transactions to have a withholding tax to create a "trigger" for tax payer action. You would have to make it really simple, eg 10% of the sales price.

On shares its even more crazy to try and do real time CGT as they are often bought/sold several times a year, not to mention loss making stocks sold in March to offset gains in the same year.

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to SteLacca
23rd Apr 2018 11:16

Sorry - I don't understand.
I sell something, I make a capital gain and then I have to withhold some tax due from myself? With no obligation to pay it over to HMRC until 31 January next year or maybe the year after?
I think maybe we all do that with all the tax we owe in the future - only we do it usually by doing nothing at all except knowing that we owe some tax>

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to Joe Soap
23rd Apr 2018 13:11

I was thinking in a manner similar to DC PAYE, which also involves withholding tax from yourself.

To place he obligation on the buyer couldn't work, since the buyer would not have information to calculate the CGT due.

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to SteLacca
23rd Apr 2018 14:12

A withholding tax is normally based on the transaction value, eg like SDLT.

Anyhow its just "less rubbish" than trying to do your own CGT in year.

Far easier to do it how we have it now.

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23rd Apr 2018 11:33

Who wrote that headline? What does"snuck" mean. Who demeaned this excellent professional service in such a manner? Hang your head in shame accountingweb!

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to GamekeeperTurnedPoacher
24th Apr 2018 20:16

Head duly hung :-)

I did note the word when the article was sent over, but 'sneaked' seemed a little bit clunky so I let it slide.

My apologies if it offended your grammatical sensibilities, hopefully it didn't take away from the article's clarity.

All the best,

Tom

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23rd Apr 2018 10:25

I agree that asking taxpayers to voluntarily pay CGT early is a pretty daft idea from HMRC, but the example given in the article as to why someone might use this system is also daft....Surely someone who has sold a buy-to-let property and made a gain would already be in self-assessment so as to report the income from the buy-to-let property prior to its sale?

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23rd Apr 2018 10:26

What is the matter with these people? No-one should declare a capital gain until they are legally required to. So, HMRC will have to wait to collect the tax.
And another thing - the letters that have been sent out regarding the filing the the 2018 tax returns asks for them to be submitted "as early as possible". No, they are not required to be submitted until 31 January 2019 (unless a repayment is due of course).

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23rd Apr 2018 10:32

The Mad Hatters tea party made more sense than this outlandish proposal.

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23rd Apr 2018 10:39

Here's what will happen. Client will submit a 'real time return', which doesn't take into account reliefs they may be due, all expenses that can be taken off, wrong base cost etc.

Agent will then do the calculation and include it on the return. Figures will, of course, be different.

HMRC will open an enquiry and try and stick to the higher figure as this is what the client reported.

More work, more mess, and HMRC trying to grab tax earlier and for the wrong figure.

Welcome to the start of Making Tax Difficult- can't wait for the endless queries from quarterly submissions...

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23rd Apr 2018 10:39

I, I , I.......... Corwumph!
(Apologies to the estate of Anthony Buckeridge).

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23rd Apr 2018 11:23

I had great fun with this with a new client who had completed the Real Time CGT form, but neglected to tell me, in fact the complete opposite. He came to me because he had contacted HMRC who told him to submit a SATR and had been sent a paper copy. I completed the SATR (online), included the gain and it produced a refund due to him (the gain was £900 ish above the exemption and he had overpaid under PAYE by about £300). He duly got his tax refund, but then received an email reminding him to pay £900 tax on the gain. Yes he had put the gain in the amount of CGT to pay box. HMRC said they couldn't just cancell the Real Time form, I couldn't access his PTA, his self assessment account was clear. Trying to submit a revised SATR with the appropriate box ticked would not sort the problem because the tax declared on the form was more than the tax due. It just changed the CGT due to £NIL on the SATR instead of giving a credit for the £900 tax incorrectly declared on the CGT form. Without checking my files I can't recall how we got it corrected in the end, but I do know it was a nuisance and an unnecessary complication with the client receiving several payment requests before it was sorted. The average taxpayer will 1. get it wrong 2. forget to tell you 3. Not understand why it is has to be calculated & reported again on their SATR 4. Not appreciate a bill for the time to get it sorted 5. Potentially overpay tax 6. Potentially submit an incomplete SATR (by thinking the gain has been dealt with elsewhere & so not reportable again)

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23rd Apr 2018 11:45

I am sorry can someone explain to me at what rate the CGT that has to be paid will be worked out?

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to KIKISROSSIDES
23rd Apr 2018 11:56

KIKISROSSIDES wrote:

I am sorry can someone explain to me at what rate the CGT that has to be paid will be worked out?


I would say 1% then correct it on the actual legally required return.
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to david wilks
23rd Apr 2018 18:26

According to my client 100%, as he had put the gain less exemption in the amount of CGT to pay box.... Accountants will not be filling in these forms, so it is anyone's guess what tax will be collected. If this new client was not told by HMRC to fill out a tax return (after a telephone enquiry over an unrelated issue), he would not have approached me or any other accountant and nobody it seems would have corrected the mistake. So if they are intended to avoid the need for a tax return I am not sure how it will be policed.

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23rd Apr 2018 12:27

good reply David and it serves them bloody right bunch of idiots. All this MTD business is what has made me say enough is enough. If it is not broken don't fix it but I suppose the Revenue is the Revenue!!

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23rd Apr 2018 14:37

Lo - I turn from this story to today's later HMRC emails and I find this - https://www.gov.uk/guidance/pay-the-tax-you-owe-on-a-capital-gain-straig...

Even though the story contains the right due dates explanation the page is still headed "straight-away" as though that was the legal obligation.
Just a small point - if you have sustained a loss you have four years to claim the loss in and not an obligation to notify taxability by 5 October? S7 TMA refers to "chargeable to CGT" and in 3(b) to "has no chargeable gains" - only a loss no obligation to notify but a requirement to claim the loss...

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23rd Apr 2018 15:47

I think this finally confirms what I have thought for a while. HMRC is now run by people who don't understand tax.

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23rd Apr 2018 15:47

I think this finally confirms what I have thought for a while. HMRC is now run by people who don't understand tax.

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23rd Apr 2018 15:47

I think this finally confirms what I have thought for a while. HMRC is now run by people who don't understand tax.

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23rd Apr 2018 22:52

Aside from getting the cost and other items correct - what about reliefs such as rollover relief or maybe the other way around where a father sells to his son for a much lower than required value?
We are back to this pretence that tax is simple. It could be simpler but that would require lobbing away all the tax law and starting again ....

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24th Apr 2018 08:44

The people dreaming up this rubbish do not have to deal with it in the real world and the constant change for no benefit only serves to keep them in a job.

More complexity and hassle for everyone but them and the same amount of tax collected. Brilliant idea.

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