How should HMRC impart CGT changes?
HMRC have published research on how they should communicate about forthcoming CGT policy changes, and Donald Drysdale examines the approach which has been taken.
CGT policy changes
Doubtless you’re aware that, from 6 April 2020, capital gains tax (CGT) reporting procedures are changing.
On disposal of any non-exempt residential property from that date onwards, a payment on account of CGT will need to be made within 30 days of completion. The person disposing of the property will also have to submit a 'payment on account return’ within the same time limit.
These new requirements will affect those disposing of second homes or rental properties. They will not apply to disposals covered wholly by private residence relief (PPR), but will apply to the non-exempt element of the gain where only partial PPR is available.
For ordinary UK taxpayers, many of whom do not engage tax advisers, these changes will impose new tax compliance pressures, a stringent new reporting requirement, a cash flow cost, and new risks of interest and penalties even for the most innocent of mistakes.
The new regime mirrors the non-resident CGT (NRCGT) filing and payment requirements introduced from April 2015, while also replacing and extending the reporting and payment rules for non-residents.
HMRC have recently published CGT communications research exploring how taxpayers and their advisers look for, and would prefer to receive, information about the forthcoming policy changes for property disposals.
This was qualitative rather than quantitative research. It sought to understand how taxpayers and intermediaries seek information about CGT; their understanding of the policy changes; and expectations of the best way for HMRC to communicate these changes.
The report was attributed to the “Behaviour, Insight and Research Team”, based on research undertaken by the Employment, Welfare and Skills team within Ipsos MORI’s Social Research Institute. It relied on detailed discussion with relatively small sample sizes and did not claim to be statistically representative.
The astonishingly small samples of research subjects comprised 6 UK-resident individuals who had paid CGT recently on property disposals, 9 individuals (6 resident and 3 non-resident) who were considering property disposals in the next 12 months, and 5 intermediaries who deal with CGT.
The intermediaries interviewed were 3 accountants, one solicitor and one estate agent. While I accept that the conclusions were not presented as statistically relevant, I can’t resist comparing this sample size of 5 with the total of around 97,500 UK businesses with Standard Industrial Classification 2007 (SIC 2007) codes indicative of such activities in 2018.
Conclusions of the report
The research concluded that ‘one-off disposal’ taxpayers – for example, those selling a recently-inherited property, a second home or a dwelling they had rented out – were least likely to know about CGT. It found that those in this group who used agents did so on an informal basis, simply where they had a question on CGT.
‘Multiple disposal’ taxpayers, such as landlords owning and renting several properties, were likely to know more about CGT and were more self-sufficient, but they sometimes consulted accountants for a sense-check of their CGT calculations before filing their self-assessment returns.
Accountants and solicitors reported that they inform their clients about CGT payment deadlines. Nonetheless, some ‘one-off disposal’ customers do miss such deadlines.
Among taxpayers looking for information about CGT, the gov.uk website appears high on their search results. To my surprise, the site is perceived as “authoritative, credible and up to date” – although navigation could be difficult therefore relevant information such as payment deadlines might easily be missed.
Intermediaries learn about CGT policy changes through various channels, including CPD and the professional press. Typically they don’t tend to consult gov.uk but (unlike the research report) I would attribute this at least partly to a lack of confidence in the website.
All the research subjects were asked to review two HMRC documents, each communicating the CGT policy changes – one for UK residents and the other for non-residents. Individuals and intermediaries all described the information as over-complicated by the style of language and quantity of text.
Broadly, they all had difficulty with an overall understanding of what HMRC were trying to communicate. Information regarding the payment on account was not always clear, even to those with more experience.
Landlords and other more experienced property disposal taxpayers were happy to receive direct communications from HMRC regarding the policy changes, while individuals without agents thought gov.uk the most appropriate channel if information there was easily accessible.
All those interviewed believed that the policy changes should be communicated as soon as possible, given that the property disposal process can sometimes be lengthy and could involve complex discussions around tax with intermediaries.
As I began reading the executive summary to the report, I was doubtful whether any worthwhile conclusions could be drawn from research based on such a small sample size.
When so few taxpayers and intermediaries are included, some of the nuances are missed. For example, the report suggests (misleadingly) that no agents are regularly providing their clients with ongoing compliance support and advice regarding property disposals.
On further reflection, it was instructive to learn that the two documents drafted by HMRC had been found wanting. If these can be improved so that they communicate clear information about the CGT policy changes to their intended audiences, then significant benefits should flow from the exercise.
Nonetheless, it is questionable whether such a tiny sample of taxpayers and intermediaries provides the best sounding board. Couldn’t HMRC have reached a better feel for the effectiveness of their proposed communications by consulting with the main tax, accountancy and law professional bodies?
Finally, I remain sceptical about the apparently high approval rating given to the gov.uk website. Among the many tax specialists known to me, a substantial proportion regard its content as dangerously over-simplified and its navigation processes as tortuous.
Article supplied by Taxing Words Ltd