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HMRC statements mislead taxpayers

Taxpayers rely on HMRC to explain what costs they can claim for, and what taxes should be paid by which dates. Rebecca Cave looks more closely at two recent HMRC statements that instilled confusion rather than clarity.

1st Dec 2020
Tax Writer Taxwriter Ltd
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HMRC guidance does not always clarify the correct tax treatment
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The latest misleading statement from HMRC came in an FT.com com article on 27 November in which HMRC’s interim director general for customer services Karl Khan was quoted as saying: “The 2019 to 2020 tax year is the last year UK residents will be required to pay the Capital Gains Tax for the sale of properties as part of the self assessment process and we want to make sure they are aware of the new requirements.”

This comment is taken from an HMRC press release on 24 November reminding taxpayers to declare gains made from residential property for 2019/20. The statement may make some sense in the context of the press release, but falls down when used as a standalone quote.

Factual error 

The issue I have with Khan’s statement is that 2019/20 is not the last year that UK resident taxpayers will be required to pay CGT on the sale of properties as part of the self assessment (SA) process.

From 2020/21 taxpayers will still be required to report and pay CGT in respect of disposals (not just sales) of property and other assets as part of their annual self- assessment, as Jacquelyn Kimber explained in June. 

New rules

The difference from 6 April 2020 is that there is an additional reporting and payment deadline of 30 days from completion of the sale or gift, for certain categories of property, where a taxable gain has been realised.

However, what gain must be reported and when depends on whether the taxpayer is UK resident or not, and how the property is defined - see tables 1 and 2 below. 

An early report of gains must be made online through the taxpayer’s UK property account, which is separate to, and in addition to, their SA tax return.

Unless the SA tax return has been submitted within 30 days of the disposal (which would be unusual) the taxpayer must report the same gain twice:

  1. On their UK property account and pay an “on account” amount of CGT
  2. On the SA return and pay any further CGT due, or reclaim any overpayment. 

Table 1: UK resident individual

Asset disposed of: UK residential property Non-residential and overseas land and property and all other assets  
 Report on: UK Property account and SA return Self-assessment tax return
Reporting deadline 30 days from completion 31 January following tax year end
Payment deadline 30 days form completion 31 January following tax year end
Rate of CGT: 18% or 28% 10% or 20%

Table 2: Non-resident individual   

Asset disposed of: UK residential property Non-residential property held directly or indirectly   
Report on: UK Property account UK Property account
Reporting deadline 30 days from completion 30 days from completion
Payment deadline 30 days form completion 30 days form completion
Rate of CGT: 18% or 28% 10% or 20%

List 3 issues

The second item of confusing HMRC guidance was spotted by David Massey, lecturer in taxation at the University of Lancaster, and former HMRC inspector of taxes. It concerns the list of approved organisations and societies for which taxpayers can claim a deduction for the subscriptions or fees under ITEPA 2003, s343(1).

The HMRC guidance says the you can’t claim a tax deduction for the fee or subscription you “do not need to do your job”. This is a clumsy double negative, which implies the taxpayer can only claim a deduction for the membership fee or subscription if they need to pay it in order to do their job.

However, the law only requires that the “duties of the employment involve the practice of the profession to which the fee relates”. In other words, the membership of the society does not have to be a necessary condition for the job, but it must be related to the job.

Membership example

Tax advisers may be members of the CIOT, and if they are the CIOT annual membership fee is a tax-deductible expense, under s343(1). But a tax adviser may practise their profession without being a member of the CIOT; it is not a necessary requirement of their job.

Any other errors?

Is it me or are these mis-statements becoming more common? If you spot any confusing or misleading HMRC guidance please let us know by commenting below. You can also report it through the “There is something wrong with this page” button as the foot of every gov.uk page. 

Any Answers Live

Replies (30)

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By Seadog
01st Dec 2020 21:50

Yes Rebecca. Spot on on the CGT mis-statement by Karl Kahn. The web page contains a box at the footer asking if there is anything wrong with the page. You can use this to report inaccurate information and I did so on the date of publication. Now all we need to do is mount a campaign against the not fit for purpose 30 day reporting "facility".

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Replying to Seadog:
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By bosclibby
02nd Dec 2020 09:35

It certainly is not fit for purpose - from what I've seen it should be scrapped and start again or preferably forget the whole thing.

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Replying to bosclibby:
Morph
By kevinringer
02nd Dec 2020 17:04

The 30-day reporting is optional. I kid you not. I came across a page on GOV.UK that said:

'You can either:
x report and pay on your Self Assessment return for the 2020 to 2021 tax year
x report and pay now using our online form'

So I took a screen shot and have opted for the first and if HMRC tell me off I'll send them my GOV.UK screen shot.

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Replying to bosclibby:
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By AndrewV12
03rd Dec 2020 09:11

You cannot beat a reply, advising something should be scrapped.

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By Seadog
01st Dec 2020 21:50

Yes Rebecca. Spot on on the CGT mis-statement by Karl Kahn. The web page contains a box at the footer asking if there is anything wrong with the page. You can use this to report inaccurate information and I did so on the date of publication. Now all we need to do is mount a campaign against the not fit for purpose 30 day reporting "facility".

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By mhkay
02nd Dec 2020 09:35

The one that gets me is when you do the "calculate how much tax I owe" when submitting a personal tax return, and it fails to deduct the amount you've already paid on account. I've gradually got used to that one, but it scared me stiff the first few times it happened.

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Replying to mhkay:
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By Mikesch
02nd Dec 2020 09:55

Totally agree. It is rediculous that the tax calculation does not contain the amount already paid. I presume that different systems do not talk to each other and another interface between payments on account made and tax calculations is not high on HMRCs agenda.

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Replying to Mikesch:
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By Fernhill
02nd Dec 2020 10:13

Client of mine rang me up the other day in a panic after receiving updated tax calculations for the last two years. He thought he owed more tax as there was no mention of the payments he'd made. In fact HMRC now owed him money!

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Replying to Fernhill:
accountant in london
By Accountant in London
02nd Dec 2020 10:18

HMRC can be quite deceiving sometimes.

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Replying to Fernhill:
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By Mikesch
02nd Dec 2020 17:06

The statements they put together are very misleading. If I'd supply something like that to my clients I'd be fired.

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Replying to mhkay:
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By flightdeck
02nd Dec 2020 10:58

Just crap isn't it?

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Replying to flightdeck:
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By Mikesch
02nd Dec 2020 17:04

Spot on!

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By Mr J Andrews
02nd Dec 2020 09:48

Karl Khan was interim director general for HMRC's customer services last month . Is he still there I wonder ? You really cannot have people in such roles , making themselves look a complete and utter fool with incorrect statements regarding the legislation.
Perhaps a sideways move to the HMRC telephone helpline is called for.

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accountant in london
By Accountant in London
02nd Dec 2020 10:17

Can I please check, under Table 1 - the rate for UK residents owning overseas Land & property - the tax rate for this will be 18/28%, rather than 10/20% shown?
I agree for other non-land/property assets it will be 10/20%.

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Replying to Accountant in London:
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By Seadog
02nd Dec 2020 17:42

Key question is "is it residential property?".

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Replying to Accountant in London:
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By Seadog
02nd Dec 2020 17:42

Key question is "is it residential property?".

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By Ian McTernan CTA
02nd Dec 2020 10:19

The 30 day rule for reporting residential property disposals and paying any tax is a farce.

No one sets up a 'UK property account' unless they need to.

Most people aren't even aware they need to unless told by their solicitors, so by the time they find it it's impossible to meet the 30 day deadline.

If they want to make the system work, then solicitors should tell their client immediately on instruction that there is a reporting requirement and solicitors should be legally obliged to file a report- so the first question they ask a client is 'who is your tax adviser'. The report can then be filed with the SDLT Return and tax payable deducted from the proceeds- so it will encourage clients to contact us early so we can calculate the gain (if any) and provide figures in good time for the solicitors.

The current system is not fit for purpose.

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Replying to Ian McTernan CTA:
accountant in london
By Accountant in London
02nd Dec 2020 10:23

If I may add, it's worse for foreign trustees disposing of UK land & property.
To set up a CGT account they first need a TRS submission reference (it's not possible to setup a CGT account for a trustee without this reference).
So now they need to register a trust first to be able to file a CGT return in 30 days.
Talk about making things absolutely difficult. Registering a trust is not an easy or fast process in the first place.

Thanks (1)
Replying to Ian McTernan CTA:
By SteveHa
07th Dec 2020 08:55

Non-residents making a reportable disposal, absent a UK address or phone number (not unreasonable to assume that a non-res will have neither) can't set up the UK Property Account in the first place.

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By richard thomas
02nd Dec 2020 10:31

The bigger whopper though is the statement in the Press Release, also attributed to Khan, that "We’re making it easier for customers to pay any tax that is owed." That may conceivably be true of those outside SA who otherwise would in theory be required to notify liability so that HMRC could issue a simple assessment, but is patently untrue of those who would have reported the gain and paid the tax in the usual easy way on their return.

Of course it's not really Khan's words but those of the Press Office, who can mangle any truths they are told until they are unrecognisable - I know, I had that experience in HMRC.

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Replying to richard thomas:
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By Homeworker
02nd Dec 2020 10:40

richard thomas wrote:

The bigger whopper though is the statement in the Press Release, also attributed to Khan, that "We’re making it easier for customers to pay any tax that is owed."


That is certainly not true for those who are not computer enabled. I've had to ask for paper returns for two clients already, which was a pain, and they have not yet processed one that was sent in three months ago, leaving the client with no idea when he will be able to pay the tax!
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Replying to Homeworker:
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By bosclibby
02nd Dec 2020 11:26

Had to file two paper Returns in July because it was impossible for various reasons to sign up for the online process - both processed at the end of November - over 4 months.
God knows how many other returns should have been done but people not aware! Agree wholeheartedly with previous comment that conveyancing Solicitors must warn clients about this because to even have a glimmer of hope of meeting the 30 day deadline the process needs to be started immediately.
Oh and I expect this chap Khan will eventually leave with a Knighthood despite the fact so many parts of HMRC systems remain a shambles, if not getting worse. Considering how well I think HMRC did generally with the CJRS and SEISS systems it only goes to show how dreadful the rest is.
Rant over!

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By turchyna582
02nd Dec 2020 14:38

What does a taxpayer do then if
1. There is a property sale completion (say August) which (after annual allowance) gives rise to a Capital Gain, and then
2. Has a further sale completion (say December) which results in a loss.

Presuming that the taxpayer is compliant and has reported and tax has to be be paid (after the first completion) at what rate of tax is paid ? The taxpayer does not know for certain what his/her rate will be as the tax year has not ended; and how does the taxpayer recover any overpaid tax if the Loss is greater than the gain?
Seems an absolute farce!

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Replying to turchyna582:
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By richard thomas
02nd Dec 2020 15:54

The rate of tax is what it would be on the assumption that (1) the only gains and losses on residential property (RP) that need to be taken into account are those made before completion date (2) losses on non RP assets before completion are taken into account (3) but no account is taken of gains on such assets - see para 7 Sch 2 FA 2019.

If a later loss on RP arises, it can be set off against the previous gain and any tax repaid - see paras 8 & 9 ibid. The loss can of course be less than the gain and some tax would be repaid. You can make a return of the loss for this purpose.

At least that's how I read it.

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chips_at_mattersey
By Les Howard
02nd Dec 2020 15:38

The background to HMRC Brief 19/2020 states: "This result is contrary to the operation of the VAT system." It is not open to HMRC to say that; only a Court of Law can determine whether a result is contrary to the operation of VAT. In fact, the Brief was released precisely because a Court of Law held that the result was not contrary, etc., etc.

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By David Gordon FCCA
02nd Dec 2020 15:59

And this is a surprise?
HMRC interpret the law according to their needs.
On behalf of clients we interpret it according to clients' needs.
Often the two interpretations agree, but if you have a query it always pays to look at the Regulations,

Otherwise there would be no point to Tax Tribunals.

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By David Gordon FCCA
02nd Dec 2020 16:15

But do not blame HMRC.
For excellent reasons we do not permit the Police to make law. (If you cannot think of at least ten reasons, put yourself in a corner wearing a Dunce's cap)
A police officer has only to break wind in the wrong direction and some parliamentary or legal person will jump on him.

Sadly those same parliamentary persons and or legal persons would rather eat worms than properly supervise HMRC.
The consequence is HMRC is in daily practice a law unto itself.
We should rather be relieved that HMRC executive restrain themselves to a great extent.
See above comment re Police and Law.

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Morph
By kevinringer
02nd Dec 2020 17:01

I used the 'what's wrong with page' earlier today about the £500 Test & Trace payment to low earners. The page on GOV.WALES makes it clear the payment is taxable and not nicable, but the same page on GOV.UK is silent on tax. Maybe this isn't a HMRC page but since HMRC abandoned hmrc.gov.uk I don't know which pages are HMRC and which are not.

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By petestar1969
03rd Dec 2020 11:29

How do the UK Property accounts work for jointly-owned property?

I have a H&W client with 7 properties jointly owned and 4 owned solely by one of them.

I assume they each need a UK Property account but if a joint property was sold how would they report it?

Each report 50% on their respective accounts? Will HMRC's systems cope with this?

The jointly owned properties are not in a partnership with its own UTR but if they were how would that work bearing in mind partnerships don't pay tax, individuals do?

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Replying to petestar1969:
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By richard thomas
05th Dec 2020 20:54

Since each joint owner has an asset and each disposes of an asset, each being a separate taxpayer (even husbands and wives since the 1980s) has to have their own UKPA to report their gain on their share.

Partnership makes no difference - see s 59 TCGA 1992. After all partners are joint owners too.

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