Her Majesty’s Revenue & Customs (“HMRC”) announces it intends to impose the maximum £3,000 penalty in respect of SDLT returns under s.96 of the Finance Act 2003, due to worryingly high numbers of errors on submitted returns.
I’ve been attending the HMRC WTSG Committee meetings as an ILEX Council member for about 5 years. Things have changed. Previously the mood was often relaxed, the atmosphere gentle and the function of the committee was to provide a forum wherein practitioners and their representatives could discus the finer points of stamp taxes, suggest amendments to the system, report errors or trends and attempt to identify anomalies relating to the practical application of the rules relating to Stamp Taxes. The last year has seen a shift in the dynamics and concerns of the WTSG Committee.
There’s been more discussion regarding avoidance and the rise of Stamp Taxes avoidance “schemes” which many conveyancers would have heard of. There has been a focus on restructuring to reduce overheads. You may have heard of “the replatforming” of the entire tax process onto a single system (and that includes all the taxes HMRC deals with). This is a major project of late which has taken up much of HMRC’s time leaving little room for the traditional nit-picking. Unlike before, the committee can no longer make a recommendation which would only affect the system as regards SDLT. The new platform is wholly integrated across all taxes. Therefore any small change affects all and comes with a huge cost implication. This means that HMRC’s stance in relation to SDLT returns which are not properly completed (and filed late as a result), or which are filed online but include “obviously inappropriate” information has become more hard-line. It is therefore important that Fellows, Members and practitioners are made aware of this.
“HMRC has become aware of a small but significant number of SDLT1 returns where information is being provided which is quite obviously incorrect. This applies to both electronic and paper filing”
This relates to data entry which, for whatever reason, appears to be failing to follow the guidance. One key example is box 49 and 51 of the SDLT1:
- Box 49.1 – in a worryingly increasing number of cases the National Insurance Number (NINO) being supplied is the example number displayed in the online system, not that of the actual purchaser.
- Box 51.2 – there appear to be an increase in entries such as the word ‘passport’ or what are clearly client file reference numbers are being entered, with ‘UK’ in box 51.3.
“We would much appreciate the co-operation of all customers in ensuring that they follow the guidance so as to ensure that their returns are correctly completed”
HMRC’s response to these issues was: “HMRC SDLT guidance is quite clear on what data should be entered into these parts of the return. This can be found on page 41 of the published SDLT6, which can also be accessed online at http://www.hmrc.gov.uk/so/sdlt6.pdf.” Remember, the SDLT6 gets updated regularly, so the one in your bottom drawer maybe quite out of date!
Furthermore, HMRC have confirmed “Whilst we understand that the requirement to provide this data may mean a small amount of additional work on the part of our customers, the provision of obviously incorrect data is unacceptable. If this continues we will have to consider using our compliance powers: submitting a return with obviously incorrect data doesn’t satisfy the filing requirements and consequently a penalty situation may arise. If we consider imposing penalties these will be under FA 03 S96”
S.96 of the Finance Act 2003 relates to the Penalty for “assisting in preparation of incorrect return”. Under that section “a person who assists in or induces the preparation or delivery of any information, return or other document that— (a) he knows will be, or is likely to be, used for any purpose of tax, and (b) he knows to be incorrect, is liable to a penalty not exceeding £3,000.”
At the committee meeting it was made very clear that HMRC would, if SDLT’s continued to be returned in this fashion, seek to impose the maximum penalty, being £3,000. It’s therefore important that all property lawyers, residential or commercial, ensure that they’re fully up to date with the current guidance and the correct level of training and supervision is provided.
The issues relating to boxes 49, 50 and 51 are not in themselves complex. The current guidance seeks to help ensure completing these particular boxes is as straightforward as possible. The fact there are a significant number of returns coming through containing information which is “quite obviously incorrect” has vexed HMRC to the extent that a hardened line and the threat of £3,000 penalties is necessary to ensure compliance by the profession.
Box 49 asks for the National Insurance Number (NINO) of the FP (FP). If FP doesn’t have NINO, then Box 50 asks for a VATNO instead (VATNO). If the FP doesn’t have a VATNO, then Box 51 has provision for alternative acceptable references. It’s a process of elimination. It appears that in many cases returns where FP does in fact have an NINO do not have the NINO entered in Box 49 and consequently practitioners are relying on Box 51. To my mind, as to the HMRC, it is inconceivable that an adult purchaser who is not a body corporate but is a UK citizen doesn’t have an NINO, but does have a passpoprt. To assist Fellows, Members and practitioners, I want to briefly look at the guidance so as to ensure there is clarity on the issue.
The guidance for Box 49 states:
“You must answer this question if the first named purchaser is an individual who has a permanent National Insurance number. In all other cases you must complete either question 50 or 51. The National Insurance number is formed of 9 characters without any spaces. The first 2 characters must be letters, the next 6 numeric and then a final letter. If the final letter is not known, leave the last box blank. Do not enter a temporary National Insurance number, initial letters TN, instead leave blank. If you have given a National Insurance number you must give a date of birth for the FP (the person for whom you have given a National Insurance number). If you have not given a National Insurance number the date of birth must be left blank.“
Firstly, in many cases, returns are being submitted which actually contain the sample NINO that appears in the blank version of the SDLT1 online. Rather than sending a completed return with FPs actual NINO, an incomplete return containing only the sample NINO that was already there is being submitted. To my mind, this is simply unacceptable as you either have an NINO for the FP, or you don’t. If you are completing a tax return on behalf of a client then it is essential to do so correctly.
The guidance for Box 50 (VATNO) states:
“Do not answer this question if you have answered question 49. Instead go directly to question 52. If you have not answered question 49 and the FP doesn’t have a VATNO, go to question 51.”
Again, relatively straightforward. If you have your client’s NINO and have input it in Box 49, you move on to Box 52. If your client doesn’t have an NINO or VATNO, then you ensure that Box 50 is blank and you move on. Remember, this is an elimination process after all!
The guidance for Box 51 (UK company or partnership UTR number or non-UK tax reference) states:
“Do not answer this question if you have answered either question 49 or question 50. Instead go directly to question 52. If you have a UK company or partnership UTR number, enter it here. If you do not have either of these numbers, give any tax reference or other registration number for the purchaser in part 2 of this question and the place (for instance, as appropriate, the town, city, state, canton etc. as well as country) that issued that reference or registration.”
Once again, the guidance seems to my mind to be pretty clear. If you have completed Box 49 or 50, you don’t need to complete Box 51, but if you didn’t have an NINO or a VATNO then you should complete Box 51.
At this stage, however, I need to stress that “not having an NINO or VATNO” doesn’t simply mean that it is not on your file. There has to be a degree of enquiry to determine whether your client has an NINO or VATNO before you get to Box 51. Box 51 is there for this purpose. It is not there as a tool of convenience. Many have detailed KYC (“know your client”) checks. This includes proof of ID, which in itself ought to mean the usual money laundering ID checks, but also asking for an NINO, or VATNO.
If the FP is a person and they are a UK resident, they will have an NINO (99% of the population do). If the FP is under the age at which an NINO is issued, (or in the tiny minority of often very elderly people), then you leave Box 49 blank. Not only do you leave it blank, but on the online version, you ensure the sample NINO is removed. If the FP is a body corporate, they won’t have an NINO in any event.
Instead of an NINO, the next best alternative is a VATNO. Now to my mind, a person who is either a minor or very elderly and has no NINO is highly unlikely to be registered for VAT. However, if the FP is a body corporate (who will not have NINO) then you ought to know if they have a VATNO, so you can use their VATNO in Box 50. If the FP doesn’t have one because they are not registered for VAT, then you move on to Box 51 as you have eliminated both the NINO and the VATNO. I apologise for repeating this, but it is a process of elimination. Box 51 is the last resort box for identifying the FP by reference to either a UK or foreign reference.
So, in relation to a FP where your KYC has determined there’s no NINO or VATNO, in Box 51 you may consider entering a passport number, company or partnership or charity registration number or some other official reference which will identify the purchaser to HMRC. If the FP is a body corporate, for example, but they have no VATNO, then you should enter the registration number for the company or partnership. The guidance goes on to say:
“If you don’t have any tax reference, you will need a reference from HMRC before you will be able to submit a valid return. To get a reference, contact the helpline on 0845 603 0135, explain the position and leave a contact phone number. HMRC Stamp Taxes will contact you within 24 hours and take the purchaser’s details. If appropriate, they will give you a reference number, which must be used for this and all subsequent land transaction notifications for that purchaser.“
Astonishingly, what has been happening is that rather than following the process of elimination, which ought to be based on the enquiries and KYC conducted as standard on the purchaser in any event (particularly under the Money Laundering requirements), returns are being completed by leaving Box 49 and 50 blank and in Box 51 entering information which is clearly inappropriate. For example returns where the word “passport” and “UK” have been entered in Box 51 (rather than the actual UK passport reference). However, there are no circumstances as I understand it, where a UK Passport could be acceptable in Box 51, because a UK Citizen, unless they are a minor, will have an NINO which ought to be entered in Box 49. This is suggestive that the enquiries and KYC process at some firms is woefully inadequate, or transposing that information to the property transaction file is not occuring. It is therefore perceived as wholly inappropriate to use the words “passport” and “UK” in this regard and effectively amounts to incorrect filing of the SDLT.
If it were appropriate to enter a UK passport in Box 51, then the passport number itself would be the appropriate reference, but I have to say, the volume of instances where the words “passport” and “UK” are entered suggest that it is highly likely that there is fact an NINO for the FP in any event. Now there may be extreme circumstances where the enquiries and KYC may not have been able to obtain the NINO from the client but that doesn’t mean that it cannot be obtained, either from the client’s bank, or if there is a mortgage, from the mortgage lender. But it cannot surely be the case that an adult with a UK passport has no NINO!
This has become more of a prevalent issue of late as a result of the replatforming of all taxes onto a new single database. In essence, every return submitted, whether it be SDLT, VAT, income tax etc, is allocated to a single “account” – the single account is the account of the tax payer, but it is intended to be the only account for that individual taxpayer for all future returns. If an SDLT is filed which contains incorrect information then HMRC will be unable to allocate the return to the correct “account” of the tax payer and must create a new account. This new account creation has a cost element attached to it, which, in the cases where the FP does in fact have an NINO, VATNO or company or UTR number, means a duplication, which amounts to a waste of resource (including people). This in turn stretches the resource and budget of HMRC, which as you will be aware has been under pressure as a result of budget constraints. Put simply, HMRC can no longer tolerate this.
I therefore urge all practitioners to ensure that they and their departments are aware that HMRC will be changing its stance in this regard. The last thing you need is to find yourself landed with multiple penalties for £3,000, so please beware, be aware and ensure that all those involved in the SDLT filing process take the time to complete and submit the returns in accordance with the guidance.
Martin Callan is a Legal Executive Lawyer and ILEX Council Member for London. Martin sits on the Treasury WTSG Committee and the SDLT Deregulation SG Committee representing ILEX
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