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Timing and paperwork
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Timing is crucial for property returns and self assessment

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HMRC has confirmed that taxpayers who have omitted to file a property return under the so-called 60-day reporting rules must still file any missing returns now, even if they have gone on to report the disposal on their self assessment return.

22nd Jul 2022
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Since April 2020, UK residents disposing of UK residential property on which capital gains tax (CGT) is due have been required to calculate, report and pay the tax within 60 days (originally 30 days) of the completion of the transaction. The default reporting route is online via the CGT on UK Property service and taxpayers who are within self assessment must effectively report twice, completing a property return first and then finalising their CGT position for the year via their self assessment return. 

These rules involved a major change in the nature and timing of CGT obligations and we received a number of queries from agents during 2020/21 filing season about what they should do if the disposal had been included in a taxpayer’s 2020/21 self assessment return but the property return had been missed. Similar queries were flagged here in Any Answers. Since HMRC’s online system blocks the submission of a property return online if a self assessment return has already been filed, agents were unsure what action to take, and we sought answers from HMRC. 

Rare occurrence

In general, the submission of a self assessment return including the property disposal does not satisfy or remove the in-year reporting requirements. There is only one situation where submission of a self assessment return containing all the necessary details of the disposal can eliminate the need for a property return, but this rarely occurs. 

It only applies when the timing of the disposal and the interaction of the tax year end is such that it is possible to submit a self assessment return containing all the details of the property disposal prior to the 60-day deadline that would otherwise apply for the property return. For example, an unconditional exchange of contracts in February 2022 with completion in late March 2022 followed by a hasty tax return before the 60 days elapse by the end of May would work. In all other cases, the property return should be submitted before the self assessment return – something HMRC formally only confirmed in April 2022.

Paper return

That confirmation came too late for those who, for whatever reason, had not got things in the right order for 2020/21 and were blocked from putting things right online. On 20 July 2022, HMRC shared the following advice with us and the other professional bodies: “In the situation when a taxpayer has already made an SA return and not completed a UK property return then they should complete a paper return. They should follow the normal process for doing this and contact HMRC.” 

The “contact HMRC” is a reference to the need to ring HMRC to obtain the necessary paper form PPDCGT. At the same meeting, HMRC confirmed that taxpayers/agents should note on the PPDCGT return that the disposal has already been reported and the CGT paid via self assessment. 

Using a paper return to correct the position in this manner is intended to be a short-term fix to this problem. HMRC are considering the longer-term approach, although they indicated that the cost of amending the system to allow online filing of a property return after submission of the self assessment return might be prohibitive.  

Penalty position 

Of course, the next question is what will be the consequences of making a late return in these circumstances will be. If the disposal originally arose in 2020/21, then any omitted property return could now be over two years overdue – leading to the unpleasant prospect of a penalty comprising the initial £100 late filing penalty, daily penalties, the higher of 5% of the tax or £300 for being over six months late, and a further similar charge for being over 12 months late. 

We are waiting to hear from HMRC about their proposed approach to penalties. Given that we have been asking for some months what taxpayers in this position should do – during which time taxpayers have been unable to act, even if they have wanted to correct the position – we think that HMRC should give consideration as to whether it is appropriate to cap the penalties charged. For example, it might be appropriate to deem a late return to have been submitted on 31 January 2022 or the actual date of the relevant self assessment return, or allow a period of grace for people to regularise their affairs with a lower penalty than would otherwise apply. Discussions are still ongoing on this point. 

Wrong order

Whatever happens, those who have filed in the wrong order – as well as those who did the process in the correct order but filed the property return late – need to be treated fairly in the context of penalties. Taxpayers who filed in the right order but late will have been issued automatically with a penalty via the system. And a taxpayer in either group might have had a reasonable excuse for failing to file, which would allow them to appeal any penalties raised.

Another alternative would be simply to cancel and refund all the penalties arising in respect of the late property returns. This is highly unlikely to happen, as penalties for the six months from June 2020 to December 2020 (the only period we have data for) were reported to amount to £1.3m. 

Summary

While no one is likely to be happy about the extra time and costs of the proposed paper-return approach, HMRC are stuck between a rock and a hard place, as the alternative would be to let off some people from reporting, which would give them an unfair advantage compared to all those who have incurred the time and cost complying and create disincentives for future compliance. 

The whole scenario serves only to reinforce my previous grumbles about the difficulties of trying to make an annual tax into a transaction tax.

Replies (24)

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By Justin Bryant
22nd Jul 2022 15:31
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Replying to Justin Bryant:
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By Helen Thornley
03rd Aug 2022 15:37

Thanks Justin - I'd put in a reference to daily penalties as although withdrawn for non-residents I wasn't 100% convinced at the time of writing the article that this would be the case for residents, and HMRC's guidance on penalties only seems to refer to the position for non-residents. A colleague at CIOT has now confirmed with HMRC that daily penalties won't be applied to residents either, and we've asked for the guidance to be updated/clarified.

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By Hometing
22nd Jul 2022 15:45

Assume they insist on this to bring forward the CGT payment date from Jan.

But for as long as the UK Property Account and the TR do not (successfully) interact and offset with one another, what is the point?

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By ireallyshouldknowthisbut
22nd Jul 2022 16:04

Seems like quite aggressive penalty farming to me.

There is no *tax raising* reason to pursue this given the client has paid the right amount of tax in the end, albeit a little late.

The only real rationale seems to be to penalise those not jumping through all the slippery hoops that now makes up our tax system and now make up a new manual process to cover the fact that the original process is in effect a very poor one and badly specified at the design phase. It also highlights the lack of basic competence at HMRC to make the necessary system changes. 'Agile development' this is not. Given this system is supposed to be how the whole MTD project is going to run (piecemeal filings very quickly after deadlines) this really does not bode well at all.

They would do much better simply abandoning this failed experiment. There seems to be a huge cost here for tax payers and HMRC to achieve nothing more than a mild acceleration of tax receipts.

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Replying to ireallyshouldknowthisbut:
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By Ammie
25th Jul 2022 10:25

Spot on.

How else will their systems automatically trigger the penalties? HMRC do not have the resources to check everyone in any other way.

HMRC happily trigger as many penalties as possible automatically and leave it to the taxpayer to appeal or contest. Much easier and more likely they would generate at least some extra funds in doing so.

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By Hugo Fair
22nd Jul 2022 16:10

Good summary of the current status/chaos, Helen, and your parting shot "The whole scenario serves only to reinforce my previous grumbles about the difficulties of trying to make an annual tax into a transaction tax" is spot on.

Whether or not HMRC is sufficiently self-aware to realise it, they have become committed to the concept of taxation at the point of transaction ... but are still trying to maintain all their records on an annual basis. See PAYE for the simplest/clearest example, but it's creeping into everything.

Which is yet another reason why MTD for IT will come a cropper.

HMRC is failing to tackle the fact that their back-end (databases and associated maintenance routines) are not fit for purpose in an increasingly real-time/transactional reporting environment - and any amount of ensuing sticky-tape/guidance reviews/updates/etc won't hide the failings that impact both taxpayers and tax-collection.

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By Paul Crowley
22nd Jul 2022 19:18

What a stupid HMRC answer to a stupid problem caused by HMRC
Sounds like the monkeys are now running the zoo, throwing poo at anything that does not give out bananas.

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By AJ85
25th Jul 2022 10:16

If a person is ordinarily in self-assessment, the 60 day reporting just seems ridiculous when the same information has to be reported on the return anyway.

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By KenKLM
25th Jul 2022 10:33

Ultimately this is the taxpayers responsibility to report but how many will know about it ? Surely the conveyancing solicitor should be taking responsibility ? Often agents will not even become aware of this until the client asks for their next tax return to be filed . Another layer of unnecessary bureaucracy if a taxpayer is already register for self assessment .

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By PhilipJG
25th Jul 2022 10:56

What is the point? Complete waste of time.

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By Self-Employed and Happy
25th Jul 2022 11:50

HMRC needs gutting and starting again, there needs to also be a government minister responsible for HMRC.

It would appear to be run by idiots for the benefit of anyone other than the people it is supposed to serve.

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By mail.taxperfect.co.uk
25th Jul 2022 12:01

Ok, so who wants their client to be the guinea pig and file their overdue Return and see what penalties arise, and whether HMRC will strictly impose?

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By Pradip Shah_1
25th Jul 2022 13:27

What is the position for a Tax Payer, who have Capital Gains on current property transactions, but which are less than Capital Losses brought forward. The understanding was that one did not need to report it as there would not be ant CGT payable. Is the position still the same or has one got to to still the Transaction Reports irrespectively.

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By Mr J Andrews
25th Jul 2022 14:04

Looks like another example of HMRC making things up as they go along.
The crunch in this fiasco lies within Helen's quotation marks .......''contact HMRC''......and having to TELEPHONE the Revenue to obtain the necessary paper Return { PPDCGT }.
If this isn't guaranteed to cause an inordinate delay :-
[a] in view of HMRC's track record of a third world telephone operating system,
[b] the ensuing delay in issuing the bit of paper by a Govt department, at least a quarter of a year in arrears,
then tell me what is !!

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By kmpike
25th Jul 2022 15:07

Is any of this necessary if the sale resulted in a loss?

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Replying to kmpike:
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By AJ85
25th Jul 2022 15:46

My understanding is that if a loss is made, it doesn't need to be reported through the separate portal, it can be reported on a tax return as normal.

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By indomitable
25th Jul 2022 15:52

Once again HMRC completely off the rails and not being managed by 'the treasury'

Someone in government needs to get a grip!

No idea about the issues it causes
No foresight into problems that will occur when they bring out new initiatives
Completely sub standard IT architecture & processes

The list goes on, it's not acceptable

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By TessaW
25th Jul 2022 17:40

Clients completed on sale of property in March 2022 and gain included on full SA returns submitted in May 2022 - within 60 days of completion. Tax inclusive of cgt due January 2023.
So, as I understand it, the current view from HMRC is that everyone with a tax liability (plus NR vendors with no gain) needs to do the separate cgt return as well as the SA return - except they don't in the situation that my clients had. HMRC wants everyone to pay the tax on the capital gain within 60 days of completion - except they don't in the situation that my clients had. Anyone who has submitted the gain on a SA return without previously doing the separate capital gain return now needs to do a paper capital gain return - except they don't in the situation that my clients had.
Hopefully HMRC will soon do a TV advert for this explaining how simple it is.

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By Gone Sailing
26th Jul 2022 11:05

I have a couple of follow up questions if I may, for my client the disposal is in 22/23, and is 'on time', so all good. Except it's my first time!

Firstly HMRC guidance is that the client needs to set up an account anyway, then I add the clients "account number" to my agency (ASA), then the client authorises.

As I can't see what the client sees (when setting up an account), I'm presuming the "account number" will be clearly visible to the client at some point, and is not their Gateway ID, is my assumption correct?

Secondly, in view of all the details the client has to input to set up the account, (and I can't see the screens) aren't they going to say "what is the point of me paying you to do it if I have to enter all this myself?".

TIA.

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Replying to Gone Sailing:
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By Hugo Fair
26th Jul 2022 14:57

If you're seeking answers to specific questions, then it would be better to post within the Any Answers section ... more frequently scanned/read by those willing to respond than by readers of these 'news' articles.

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Replying to Hugo Fair:
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By Gone Sailing
26th Jul 2022 15:02

Thank you, yes I know, and have often. On this occasion my thought was 'here's some contributors who have experience of this particular subject'.

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Replying to Gone Sailing:
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By Geoff56
27th Jul 2022 08:45

Just ask for a paper return; it is so much simpler. I have done all mine this way. Your client does not have to be digitally excluded; anyone can choose to make their return by paper.

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Morph
By kevinringer
29th Jul 2022 09:49

"HMRC are stuck between a rock and a hard place"

HMRC's position is entirely of their own making for failing to think this regime through. HMRC ran a very limited "pilot" which only engaged with the willing and completely failed to engage with the digitally-challenged, the digitally-excluded and those who avoid HMRC like the plague. HMRC also failed to engage with estate agents and solicitors with the result that awareness is nil. I've just been approached by a solicitor who runs an estate with another solicitor as executor, and neither were aware of 30/60-day CGT. I know that Helen and other PBs attempted to engage with HMRC about this new regime in the design phase but HMRC were not for listening. I have no sympathy with HMRC as they chose to ignore the good advice they were being given. Exactly the same is happening with MTD ITSA.

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Morph
By kevinringer
29th Jul 2022 09:52

"The whole scenario serves only to reinforce my previous grumbles about the difficulties of trying to make an annual tax into a transaction tax."

HMRC are attempting to do the same with MTD ITSA. VAT is a transactional tax. ITSA is an annual tax. That's why VAT lends itself to MTD whereas ITSA does not. 30/60-day CGT affects a small proportion of SA taxpayers whereas MTD ITSA will affect most of them. The magnitude of the chaos that will be generated by MTD ITSA will make 30/60-day CGT look like a walk in the park.

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