ATT Technical Officer The Association of Taxation Technicians
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How to reclaim CGT paid on account

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Helen Thornley tackles the problems created by a disconnect between self assessment and the UK Property Reporting Service for paying CGT due within 30 days of UK residential property disposals. 

13th Jul 2021
ATT Technical Officer The Association of Taxation Technicians
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Since April 2020, UK residents have been required to calculate, report and pay CGT on their UK residential property gains within 30 days of completion.

An early consultation described the new in-year payment as a payment ‘on account’ of CGT. Accordingly, most of the tax profession assumed that if a taxpayer overpaid during the year it would be straightforward to recover any difference through the usual self assessment process. 

Overpayments of CGT are quite likely, as total income for the year would only be estimated at the time of the property sale, and any capital losses realised post-completion can only be offset via self assessment.

Recovering overpayments

In practice, it has turned out quite differently. While the SA108 pages have been updated to include details of gains on UK residential property reported in year via the property service – and the tax charged – HMRC’s calculation will only offset the tax charged in that way against other CGT liabilities. Once the CGT due has been reduced to nil, any excess CGT paid is not showing on calculations as repayable, nor will it be set against any income tax or class 4 NIC liabilities.

The result is that a UK residential individual who has paid CGT of £7,000 on account during the year via a property return, but has a final CGT liability of £5,000, will not be able to offset the excess of £2,000 against their income tax liability automatically, nor will the amount show as recoverable under self assessment.

HMRC workaround

The only way to recover or offset the overpaid £2,000 in these circumstances is to follow a new workaround shared by HMRC at the end of June.

The workaround suggests either:

(a) amending the UK Property Return before submitting the self assessment return for the year to recover the overpayment that way; or

(b) submitting the self assessment return and then calling HMRC to ask for a manual transfer to be made of the payments showing on the property account against the self-assessment account so it can then be offset against the total self-assessment bill.

Estimates or amendments

Of the two options, tax agents who have managed to complete a digital handshake with their client and so can amend online are most likely to want to

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Replies (21)

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ghm
By TaxTeddy
13th Jul 2021 14:00

Thanks Helen - this is worth highlighting.

On another matter - can you say if CIOT/ATT is supporting practitioners' calls for wholesale changes int the MTD for income tax proposals?

Thanks

Thanks (1)
Replying to TaxTeddy:
Helen Thornley Profile picture
By Helen Thornley
14th Jul 2021 15:13

Thanks.

Re MTD - I have just had a chat with a colleague and I think we can say yes, we are being robust about the concerns members have on MTD for ITSA. If you are an ATT member and you want to say more, then do get in touch via the usual technical inbox.

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By Paul Crowley
13th Jul 2021 14:03

HMRC unable to cope with their own IT
No surprise there then

Thanks (6)
By SteveHa
13th Jul 2021 14:49

HMRC should spend less time working on guidance to explain workarounds, and more time fixing their appallingly broken and disjointed IT systems.

Thanks (7)
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By Winnie Wiggleroom
13th Jul 2021 15:07

One would have thought in this day and age that any organisation that intends implementing a new system would take care to think through the consequences, HMRC however implement these things with no thought or meaningful consultation and then have to play catch up when it all falls over, creating more work for themselves and everyone else than if they had gone through the proper process in the first place.

Thanks (9)
Chris M
By mr. mischief
13th Jul 2021 15:27

My approach here would be to minimise the chances of this happening. That is, make pessimistic estimates of a taxpayer's income - assume zero bonuses etc. - and very pessimistic estimates of future disposals in the tax year.

As and when HMRC fix their stupid system I will change this policy. I've only done 2 so far, both showing zero tax due making reasonable - but not guaranteed - assumptions about the 2021-2022 tax year.

Thanks for the information, yet another mess-up from HMRC. What can possibly go wrong with MTD?

Thanks (6)
By ireallyshouldknowthisbut
14th Jul 2021 09:18

Its crushingly stupid to introduce this new system and it not be integrated.

it would nice to be surprised that this has happened I am not given the dearth of any talent at HMRC's end.

But then again its crushingly stupid to STILL be doing NIC workarounds for Class 2 and HMRC's systems routinely remove correct reported NIC. There must be 100,000's of incorrectly adjusted returns per annum and unrepresented tax payers who in 10-20 years time find a gap in their NIC records are going to raise merry hell on the basis HMRC had been notified (via the tax return) of their self employed status. Given this now seems to not be going away, to not fix it is quite frankly stupid on so many levels. Loss of tax revenue. Huge waste of time for HMRC. Both of which are immediate HMRC issues. Then the wider society issues of future pension gaps and a huge waste of time for agents, albeit I know our time is completely irrelevant. All for the sake of what must be a minor programming issue, to push data from the SA return to the NIC system, not the other way around.

Thanks (5)
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By spuddle
14th Jul 2021 10:28

What a ridiculous situation to have been created without proper planning or care for the outcome.
HMRC have the cheek to preach to others.
"P*ss up in a brewery" comes to mind....

Thanks (7)
Replying to spuddle:
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By jjjjjjjjjjjj
14th Jul 2021 14:16

Couldn't have put it better! (Ex-HMRC staff)

Thanks (1)
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By DMBAcc
14th Jul 2021 11:00

So no surprises there then? A client of mine was to retire and he had been advised to pay extra monies to DWP in order to maximise his state pension. Some 18 months later that money had still not been allocated to my client in his HMRC and DWP records. I ended up making a dozen calls to both HMRC and DWP who refused to talk to each other but were happy for me, a member of the public, to be the "go between". I absolutely despair that we have cretins in government and in the civil service, none of whom would last 5 minutes as an accountant, introducing such infantile legislation. It is absolutely embarrassing that they NEVER sit down with professionals before introducing these schemes but WE then have to chase them to advise them how to make it work (at no cost to them). As I say I despair for the future. I predict that accruals accounting will disappear once agents are no longer involved. Then there will be no one to challenge these appalling legislators. As for now Mr Mischief has the answer to look at the most pessimistic estimate for clients which is particularly easy with the way Covid is affecting most of us.

Thanks (7)
Replying to DMBAcc:
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By Marlinman
14th Jul 2021 11:33

All civil servants are useless parasites who just sit on their big fat arses all day thinking up excuses for cocking things up or not getting things done. Pritti Patel was right, they are F*****g useless.

Thanks (2)
Replying to Marlinman:
Chris M
By mr. mischief
14th Jul 2021 13:01

I can see why short-sighted people can think like this, but it is really blaming the messenger. The people really to blame are the politicans of all parties who rush through ill-prepared legislation, often despite objections from those at the coal face who can see the obvious, glaring problems which it will cause.

The formation of HMRC, and the 100mph introduction of MTD, are 2 examples. Speak to any HMRC person privately about MTD and you will get a very different viewpoint from that parrotted by senior HMRC management and the Treasury. A view which, if possible, is even more contemptuous of MTD than that shared by most of us, which is setting a high bar indeed.

Thanks (3)
Replying to Marlinman:
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By Homeworker
18th Jul 2021 13:25

I am a former civil servant who left HMRC in 1985 and agree that there are plenty of problems with current systems but I think this comment is unnecessarily offensive. It is hardly the fault of those "on the ground" or on the end of the phone that the policy makers have made such a hash of the CGT reporting system. Nor that they receive inadequate training nowadays for the jobs they are asked to do.

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By Ajtms
14th Jul 2021 11:27

Thanks Helen for the further clarity. Apart from HMRC's continued and proven incompetence, I don't see anywhere where they are explaining their failings and apologising to both the profession and the general public who amongst the unrepresented are not even aware that they have to make a 30 day return! They instead seem content to leave all the explaining to you (no doubt because you explain things a million times better). It is about time HMRC widely publicised the requirement to file 30 day CGT returns and to outline their system failings and to offer the public every assistance instead of issuing £1.3m in fines for these 30 day returns to the taxpayers who were not even aware that they had to make a return! For the unrepresented HMRC will clearly never refund CGT overpayments automatically and I cannot help wondering if this is the intention.

Thanks (2)
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By flightdeck
14th Jul 2021 11:33

pathetic pathetic pathetic

halfwits

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By Ian McTernan CTA
14th Jul 2021 13:26

As usual, another tacked on system planned by committees of civil servants without involving those who know about these things, ie us.

I would quite happily be a consultant to HMRC (for a nice fat fee, of course) and tell them of all the issues with matters from our side so they could have half a chance of making sure the problems don't arise.

Not integrating this (admittedly rubbish) reporting system, not allowing agents direct access without jumping through hoops, not advising the public about it, all just what we expect from the petty fiefdoms built by civil servants- just look at the problems getting departments talking to each other .

Can't wait for IT MTD and what a shower that will be...with millions of people being forced to take up software just so they can report quarterly rental income and then make a hash of it all. Not to mention the complete mess it will be trying to remind everyone to get it done every 3 months and the joys of open banking meaning they have to renew their links too...

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By North East Accountant
14th Jul 2021 13:27

You couldn't make this up.....

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By Moo
14th Jul 2021 14:23

Shouldn't / couldn't the Office of Tax Simplification have something to say about this manifest clusterf*** or have they been totally neutered?

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By Max Maxwell
14th Jul 2021 16:36

Incompetent HMRC!

I completed a paper return for an elderly couple who had disposed a rental property.

On the paper return, you have to work out a rough estimate of the tax due and submit your calculations showing what you estimate to be their tax liability.

Sent this off to HMRC and some 8 weeks later, we had acknowledgment that the return was received and a tax payment request.

However, HMRC had ignored our calculations of the tax due and had worked out their own estimate of the tax payable, without explanation of how they had calculated this!

So what was the point of asking the taxpayer to estimate the tax due?

Overall, the tax due in total for both the taxpayers was within a few hundred pounds of our calculations, so I advised the taxpayers to pay the amount demanded, thinking it will come out "in the wash" when we do their tax returns for 2020/21.

However, having read the article above, I am now a bit concerned since any overpaid CGT will not be offset against the total tax bill.

More time will be spent calling HMRC and to allocate any overpaid CGT against the tax bill!

Happy Days! (NOT)

Thanks (1)
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By fawltybasil2575
14th Jul 2021 20:26

@´mr. mischief (your 15.27 post).

Your post says:-

“My approach here would be to minimise the chances of this happening. That is, make pessimistic estimates of a taxpayer's income - assume zero bonuses etc. - and VERY PESSIMISTIC ESTIMATES OF FUTURE DISPOSALS IN THE TAX YEAR (emphasis added).
As and when HMRC fix their stupid system I will change this policy. I've only done 2 so far, both showing zero tax due making reasonable - but not guaranteed – ASSUMPTIONS ABOUT THE 2020/21 TAX YEAR (emphasis added)".

I am comfortable with your making “reasonable” assumptions (indeed this is a legal requirement) re future INCOME in the tax year. I am concerned however with your references to “very pessimistic estimates of future “disposals” (clearly CGT disposals) in the tax year. If any future CGT disposal is expected to result in a Gain, then such Gain should not be taken into account in estimating the CGT (on reportable UK residential property gain transactions) in any event. More importantly, if any future CGT LOSSES are anticipated, then such CGT Losses, under the legislation, must NOT be factored into the reportable residential property gain calculations. [7.2 of Schedule 2 of FA 2019].

[For completeness, one should, in estimating the CGT at issue, take account of CGT Losses brought forward from previous years and also indeed CGT Losses from the start of the tax year up to the date of the disposal of the residential property at issue, but NOT later disposals].

It is probably unlikely that any (relatively minor) breach of legislation will result in action against the taxpayer, but you should not be party to such breach. If the potential CGT underpayment however is SUBSTANTIAL, I would expect HMRC to pursue Penalties for submitting an incorrect Return.

I cannot fault the general comments of you and other contributors above re the unsatisfactory HMRC processes, but one’s exposure as taxpayer and/or agent would (probably) be unaffected by those failings.

Basil.

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