Consultation Response to HMRC Consultation on Stamp Duty Land Tax: Changes to the Filing and Payment Process October 2016

Introduction 1. - The Law Society of England and Wales ("The Society") is the professional body for the solicitors' profession in England and Wales, representing over 160,000 registered legal practitioners. The Society represents the profession to parliament, government and regulatory bodies and has a public interest in the reform of the law. 2. The Society welcomes the opportunity to respond to this consultation https://www.gov.uk/government/uploads/system/uploads/attachment_data/file /545091/Stamp_duty_land_taxchanges_to_the_filing_and_payment_process.pdf 3. This response has been prepared by the Society‟s Conveyancing and Land Law Committee and the Tax Law Committee. 4. Conveyancing and property related work is an important business activity for the Society members, involving as it does, approximately one fifth of the profession. Both commercial and residential property work involves dealings that are impacted by Stamp Duty Land Tax.

Response 5. The government announced in the Autumn Statement 2015 that it would:  reduce the stamp duty land tax (SDLT) filing and payment window from 30 days to 14 days in 2017 to 2018 

consult on the SDLT filing and payment process in 2016

This consultation gives effect to this announcement. 6. SDLT is chargeable on acquisitions of land in England, Wales and Northern Ireland. The government says that current processes for filing a SDLT return and paying the SDLT are effective, but that improvements could be made which would increase efficiency, and reduce the compliance burden and costs for both HMRC and customers. 7. The consultation document under reply seeks views on proposed changes, their design and implementation. HMRC propose to merge the filing and the payment of SDLT into an integrated system, they propose that payment would be taken by a single Direct Debit with cheques only used in exceptional circumstances. HMRC also propose to make online filing and electronic payment mandatory for all agents.

The consultation seeks views on the best way to drive compliance, as well as the costs and issues that may arise from making the online process mandatory.

8. The Society‟s responses to the questions in HMRC‟s Consultation are set out below. 9. The Society would like to preface this with some general comments on the importance of simplifying SDLT returns. 10. Collection of relevant information The Society strongly believes that the SDLT return could be simpler. This is a corollary of mandating online filing. If HMRC requires all returns filed by agents to be done online, the return needs to be simplified to facilitate online filing. One important example of how it can be simplified is cited in the Society‟s responses below. This is that the focus of the process should be to only collect information required that is directly relevant to SDLT. This could make the process more efficient and effective. The removal of obligations to provide information, that is useful for other purposes, but is not relevant to this process, such as the information for the Valuation Office Agency, would be an effective step towards simplification. 11. Lessons from Wales The Society understands that the returns for the new Welsh Land Transaction Tax announced by the Welsh Government on 15 September 2016 to take effect in April 2018 are likely to be a very great deal simpler than the SDLT returns. This could set a precedent for the approach HMRC should adopt going forward in relation to the form of SDLT returns. 12. Increased complexity and costs The increasing complexity of SDLT law and practice, exemplified by the intricacies of the rules on the extra 3% for additional residential properties means that it can now take longer to deal with these issues and therefore may result in higher costs. Whilst in residential matters agents may include this work within their fixed fees, and, in many cases taxpayers will not have the option of dealing with the return themselves, particularly if they are obtaining a mortgage, there may be circumstances where taxpayers choose to deal with the returns themselves. If the return was made simpler this could be of benefit to both taxpayers and agents. 13. Investment in SDLT Mandatory online filing and electronic payment should streamline the process for submitting returns and reduce the number of errors that HMRC has to chase up. This frees up HMRC‟s resources and the Society would like to think that the value of the freed up resources would be reinvested in the SDLT process , through the recruitment and training to a high standard of SDLT technical experts, who can provide timely and technically accurate responses to taxpayer and agent queries.

Question 1: Are you aware of any issues that may arise as a result of the reduction in the filing and payment window to 14 days? If so, do you have any suggestions on how they could be overcome? 14. Subject to the one exemption set out below, the Society does not believe that there will be any material problems for the majority of agents or their clients resulting from the reduction of the period for filing SDLT returns and paying SDLT from 30 to 14 days. In terms of filing, the vast majority of returns (97% according to the Consultation Document) are filed online and the online process ensures a more prompt and efficient submission of the return. When most returns were on paper and were wet-ink signed by the taxpayer, this resulted in more delays in the process. While some agents still like their client taxpayer to wet-ink sign a paper return for evidential purposes, many agents now email the form of return to their client for approval of its contents and consent to submit online. This is usually effected either at the time of, or shortly after, the effective date of the transaction. Therefore, the 14 day period should not normally be problematic in terms of filing returns for agents. Taxpayers filing their own returns may have more difficulties with the reduction in the time period, but they still have 14 days and we understand that most taxpayers use an agent to file the return on their behalf. 15. The Society wishes to highlight an exception relating to applications to defer SDLT in the case of contingent or uncertain sums (referred to in paragraph 2.1 of the consultation document). The proposed change is to require the applications to be made within 14 days and the Society considers that this may cause problems. The information necessary to decide whether to apply to defer, may only be available close to the effective date and this may mean that 14 days is an insufficient period in which to make the application especially at times of the year when there are public holidays. The Society would ask that consideration be given to retaining the existing 30 days period for making an application to defer in the case of a contingent or uncertain sum. 16. As to the reduction in the period to 14 days for paying the SDLT, this again should not be problematic in the majority of situations. The required funds for the payment of SDLT are usually sent through with the completion money and, therefore, the agent will normally be in funds on completion or shortly afterwards to make the payment. For residential purchase transactions involving a mortgage there is usually an obligation on the agent to be in possession of the SDLT before releasing the mortgage funds. The reduction in the period ought not to be problematic for taxpayers dealing with the payment themselves. Question 2: Do you have any views on the proposals for mandatory online filing and mandatory electronic payment? 17. The Society supports the proposals for mandatory online filing and mandatory electronic payment for agents. Through its involvement with the SDLT Working Together Steering Group, the Society is aware of HMRC‟s persistent efforts to encourage agents to adopt online filing. The percentage of agents filing online is already very high and universal adoption is unlikely to be achieved if it is not

mandated. The Society is also conscious of the disproportionate amount of errors in paper returns that arise because of the lack of validation functionality that comes with the online service. There are benefits to online filing, the most important of which is the immediate receipt of SDLT5, so there is no obvious reason for standard transactions why agents should still want to file using the paper return. 18. Some agents will be concerned as to whether online filing can cope with more complex transactions. However, the Society notes that HMRC indicate that exemptions would be available where online filing is not reasonably practicable. This is further commented on in the response to question 3. 19. As to mandatory electronic payment of SDLT, it is somewhat anachronistic that about 250,000 SDLT payments are made by cheque each year rather than electronically, when there is such a high proportion of online filing. Using the Bacs method of electronic payment is free and should be available to all agents. Faster Payments provides another payment method. In view of the surprisingly high use of cheques, it appears that mandating electronic payment is required to change payment behaviours. “Problems with payments” is apparently the most common topic for calls to HMRC‟s helpdesk and mandating electronic payments should help to alleviate the situation. This view does suppose that, where cheques are being used to pay SDLT, the cheques are being drawn on the accounts of the agent. If there is a practice of agents submitting returns on behalf of purchasers whilst simply forwarding cheques supplied by the purchaser, forcing electronic payment may cause more problems as it will either require agents to wait for payment from the purchaser to clear into the agent's account (which could cause difficulty if the time for payment is reduced to 14 days), or require the purchaser to pay directly to HMRC (which could cause difficulty in linking the payment to the return).Given the lenders requirements the Society would not expect this to be a widespread practice if it does occur. 20. Transitional arrangements While the Society supports mandating online filing and electronic payment for agents, it is concerned that to bring in the change without a transitional period may lead to agent‟s unwittingly using paper returns or more likely, paying by cheque. The Society suggests that there is a transitional period of between six months and one year from when the changes go live, when either paper/cheque or electronic methods are acceptable. This gives agents time to adjust and should reduce the amount of rejections/penalties when the electronic method becomes the only valid one. Agents of all sizes will require time to implement process changes. It may be that case management software changes will need to be designed, tested and implemented. Some agents may wish to train staff to adapt to the new method of submission and payment. Question 3: What exemptions to mandatory online filing and mandatory electronic payment do you consider would be necessary? 21. We note that the Consultation document cites examples of exemptions where online filing is not reasonably practicable –citing remoteness of location or on grounds such

as religious beliefs. The Society believes that the most obvious exemption should be for more complex transactions where the nature of the transaction is not best suited to online filing. The type of transactions that the Society has in mind are those that would previously have been sent to HMRC‟s former “Complex Transactions Unit”, where agents would provide explanations about transactions that cannot be captured adequately through the more binary method of online filing. Examples are:  certain linked transactions where apportionments of the first £150,000 tax free need to be explained in relation to linked leases, 

substantial performance of agreements for lease where the term of the lease to be granted is uncertain

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complexities in relation to overlap relief, or where two returns need to be filed within a short period of each other.

22. If online filing is mandated, the Society considers that there should still be an opportunity for agents to send correspondence to HMRC explaining why returns have been formulated in a particular way. 23. The Society considers that the lack of a space for "white space disclosure" in the SDLT return is very likely to add to the instances where paper returns are being used, together with separate disclosure to the Birmingham Stamp Office. In several of the more complex transactions mentioned above, being able to make a disclosure in the return could help reduce the need for a paper return. In addition, being able to make disclosure in some of these cases may also help reduce the number of enquiries that need to be raised where the amount of tax paid on the transaction does not appear to match the consideration as noted on the return. 24. As to exemptions for agents paying other than electronically, the Society struggles to see many situations where a payment could not be made electronically. The Society is happy with the Consultation‟s position that the exemption would be available where online payment is not reasonably practicable, to cater for the situations where lack of the requisite infrastructure means that electronic payment cannot be conducted. . Question 4: What is your view regarding the option for HMRC to reject paper returns in circumstances where agents should have filed online? 25. The Society understands that there need to be some enforcement mechanisms. It might be that very small penalties may be a more proportionate response than rejecting the paper return. Rejection means that a further return must be submitted (even if the original paper return was filled out correctly), which delays the issue of the SDLT5 certificate. This may have adverse consequences on the making of Land Registry applications within the relevant priority period. Also if the agent has filed the paper return and made a payment using the original Unique Transaction Reference Number (UTRN), simply rejecting the return will result in a new return with a different

UTRN. If the agent has already paid the SDLT using the UTRN for the first return, there will be added work for HMRC in reconciling the payment with the new return. The Society requests that if the penalty approach is adopted, HMRC will further consult on the basis for, and amount of, such penalties and would expect there to be a “reasonable excuse” carve out from the penalty without there being any limitation as to that reasonable excuse. Question 5: Do you have any views on how best to drive compliance with mandatory online filing and mandatory electronic payment? 26. Penalties may be an effective means of driving compliance subject to there being a proportionate transitional period and sufficient information being supplied to agents about the changes before mandation. Rejecting returns would also be effective, but the adverse consequences may ultimately be counter-productive since the need to file a replacement return merely adds to the administration for HMRC as well as agents. 27. Incentives to submit online could be used to encourage compliance. Land Registry greatly encouraged customer use of its electronic submission programme through halving the amount of the fee as compared to a paper submission. It would be useful for HMRC to talk to Land Registry about how they have incentivised electronic submissions. From the Society‟s perspective, such incentives would be a preferable method to drive compliance as compared with penalties or rejecting returns. Question 6: If the HMRC online return was modified to allow a user to input direct debit details, is this an option you might use and why? 28. While direct debit is used frequently for Land Registry payments, the payments are often small sums for searches. In an SDLT context, the sums involved will be quite substantial and there will be concerns about such sums automatically coming out of the relevant account. Agents are, therefore, likely to be disinclined to use direct debit for SDLT payments. Such an approach may need to be discussed with the regulators or representatives of the various agents involved if HMRC were minded to permit this. Question 7: Do you have any views regarding the proposal to give purchasers who are not filing through an agent, access to the HMRC online filing service? 29. The Society cannot see strong reasons why purchasers, who are not filing through an agent, should not be able to file online. This is consistent with an increasingly digital environment. As set out above most purchasers of residential property, who are using mortgage funds as part of the purchase monies, would probably not be in a position to take advantage of this option. Question 8: Would you find it useful to have the UTRN earlier in the process?

30. The Society considers that it would be beneficial to have the UTRN earlier in the process. The proposal would also align the position with some third party software suppliers which enable the generation of a UTRN at the start of filling out the online return. Question 9: Do you have any other comments on the further improvements that are being considered to the HMRC online filing service; and can you identify other areas that could be improved?

31. In relation to the further proposals referred in paragraph 2.9 of the Consultation  for HMRC to interact directly with Land Registry with regard to the provision of SDLT 5 data relating to registrable transactions. While it is a good idea in efficiency terms for the SDLT5, or the information contained in the SDLT5, to be provided directly to Land Registry, the agent/taxpayer should also be provided with the SDLT5. 

For HMRC to build in functionality so that an online amendments can be made to a return that has been submitted within 12 months of submission the Society agrees with the proposed ability to file online amendments to a return submitted online within 12 months of submission.

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For HMRC to provide an „address look up‟ facility. This would be useful potentially for both government and users but given that this could involve additional costs for many customers it would be preferable for this to be used as an optional rather than mandatory facility. As indicated free text will, in any event, be required for new addresses before the issue of a postcode. A concern of the “address look up” functionality, the concern would be the user selecting the wrong option. From the Valuation Office Agencies perspective, is it better to have wrongly chosen options (which is likely to happen quite often) or addresses that are correctly entered but which are difficult to match up? The Society agrees that the UPRN should not be mandatory.

32. In relation to other areas that could be improved:  As the Society has stated many times previously, almost since the introduction of Stamp Duty Land Tax, one of the biggest issues for members in terms of SDLT remains the excessive amount of information required in relation to letting documents that has nothing to do with the notifiable transaction itself, or the tax payable. This information is primarily for the purposes of the Valuation Office Agency and the Society for many years has raised objections to the SDLT filing process being used as an opportunity for the VOA to collect extra information, for example, for its rating purposes. There is an on-going dialogue between the Society, HMRC, VOA and other stakeholder bodies over this issue and the Society continues to request that an attempt is made to reduce the amount of information requested, so as to streamline the SDLT submission process. The

requirement to provide this information increases the time and cost to file the returns. If part of the reason behind mandating online filing is to increase efficiencies, HMRC and VOA should reinforce their efforts to focus on ways of reducing the information required to be provided. This applies to both paper and online filing. Paragraph 2.10 of the Consultation Document is noted in this regard. 

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The provision of a standard questionnaire or flowchart for completion by taxpayers when purchasing residential property to establish whether or not the additional 3% SDLT is due would be very helpful. As previously mentioned there are so many different matters to take into account here, including the rather complex transitional provisions, it would be very helpful if some assistance could be provided to conveyancing rather than tax solicitors. Assistance in the practical manner of a standard questionnaire is likely to be useful than in establishing the circumstances in which the additional 3% SDLT on second homes and buy to let properties is due. The provision of some record keeping functionality would also be useful. One weakness of HMRC‟s online service is the lack of such a facility on the service so that, unless the agent/taxpayer prints out a copy of the return submitted, there is no accessible record of what has been submitted. Third party software providers offer this facility and this may be something that HMRC should consider providing Question 10: What are the expected one-off and ongoing costs of reducing the filing and payment window to 14 days?

33. The Society struggles to see that there will be significant extra costs arising from a reduction in the period to file and pay. Question 11: What are the expected one-off and ongoing costs if online filing and electronic payments are mandated? 34. As mentioned above it may be necessary to commission and have designed tested and implemented case software or other process changes. This may particularly be the case for those agents that use HMRC‟s system and do not use third party software providers for their filing and payment processes. However in general in view of the limited technology requirements to file online (internet connection) and pay electronically (by BACS or Faster Payments which are free), it is difficult to see that this will materially increase costs either as a one-off or on an on-going basis. There will be some training needs, but this is unlikely to have a material impact and ultimately the online process is very likely to be seen by agents as more efficient. The position may be different for taxpayers filing themselves, but then online filing or electronic payments are not mandatory for them. Question 12: Are there any specific impacts for small & micro businesses not covered above? 35. It is important for HMRC to provide clear guidance on the online filing process and electronic payments to assist small and micro businesses as well as other agents and taxpayers. Such businesses may have limited resources to devote to SDLT

submissions and the introduction of mandatory filing should be sympathetic to the greater needs of such businesses. The transitional arrangements that the Society mentions earlier would be especially helpful to such businesses.

Officer's Name Officer's Title Officer's Email address Officer's Telephone number

: Diane Latter : Policy Advisor : [email protected] : 0207 320 5783