HMRC has issued a consultation proposing that, among other changes, the period in which SDLT has to be paid should be reduced from 30 to 14 days.
Many real estate transactions involve the payment of stamp duty land tax (SDLT). The person responsible for paying SDLT has to make a Land Transaction Return and pay the SDLT within 30 days of the effective date of the transaction. The effective date is usually the completion date but it can be earlier if a contract is substantially performed, for example by a tenant going into occupation of the property under the terms of an agreement for lease or by the payment of rent or 90% or more of the price before completion.
Reduction to 14 days
HM Revenue & Customs (HMRC) is consulting on a number of proposed changes to the system for paying SDLT. The key one is to reduce to 14 days the window for making the Land Transaction Return and paying SDLT. This proposal was announced last year in the Chancellor's Autumn Statement but the formal consultation has only just been launched. There is, perhaps, an air of inevitability that this change will be introduced whatever the responses to the consultation are.
The majority of the transactions that HMRC process are residential transactions. With these, it is possible to calculate in advance how much SDLT will be payable and for the Land Transaction Return to be approved by the taxpayer before completion. Reducing the window to 14 days will have little impact on residential transactions. The solicitor will collect the SDLT payable before completion and be in a position to make the Land Transaction Return and pay the SDLT immediately after completion.
Commercial transactions are more complex. In many cases, it may not be possible to calculate the amount of SDLT payable until completion has taken place or, where a contract is substantially performed, it may not be possible to prepare the Land Transaction Return in advance. In these cases, 14 days is not long to prepare a Land Transaction Return, send it to the taxpayer for approval, obtain funds for paying the SDLT, then send the Land Transaction Return and pay the SDLT to HMRC, particularly where commercial taxpayers have internal sign-off procedures for their Land Transaction Returns.
In addition, some transactions require additional steps such as making an application to defer the payment of SDLT on uncertain or contingent consideration. If the application is not made in time, the right to defer payment of SDLT is lost. Reducing the window to 14 days for these transactions will create problems. Shoosmiths is therefore unhappy about the proposal to the reduction of the SDLT window to 14 days.
Payment of SDLT electronically
Another proposal that HMRC has put forward is for taxpayers' agents to be required to submit Land Transaction Returns and pay SDLT electronically to HMRC, rather than by hand written forms and posting a cheque. Shoosmiths already does everything electronically. However, this proposal reveals another weakness in the proposal to reduce the SDLT window to 14 days. Many solicitors pay SDLT electronically using the cheaper BACS system rather than the more expensive same day CHAPS system. BACS payments take two to three days to reach HMRC. Therefore, reducing the SDLT window to 14 days effectively means an 11 day window where the BACS system is used.
Linking confirmation of compliance with the payment of SDLT
The final proposal made by HMRC will address an anomaly in the SDLT system. Currently, you can make a Land Transaction Return and obtain confirmation from HMRC that it has been made without having paid the SDLT. This confirmation is important as the Land Registry will not register a transaction without it. HMRC's computer systems are currently unable to link issuing a confirmation that a Land Transaction Return has been made with the payment of the SDLT. HMRC want to address this anomaly so that the certificate is not issued unless and until the SDLT has been paid. It is not known how long it will take HMRC to address this issue.
About the consultation
If you want to know more about HMRC's consultation and to respond, you can find a copy of it here. The consultation closes on 7 October 2016.