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Where Taxpayers and Advisers Meet

NRCGT return

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm
Re: NRCGT return

Postby etf » Tue Apr 24, 2018 2:58 pm

The well known tax commentator Peter Vaines questioned the fairness of the penalties in his article below (my bold).

NR CGT Return Penalties
Some clarification would seem to be necessary regarding the obligations for submitting Non Residents Capital Gains Tax returns and the penalties for failing to do so.
It may be remembered that in the case of Patsy-Anne Saunders v HMRC TC 6173 (and in Rachel McGreevy v HMRC TC 6109) HMRC failed to impose penalties for the late submission of Non Residents CGT returns.

Patsy-Anne Saunders sold a UK residential property at a loss. She was not resident in the UK and although she was aware that capital gains tax can now be charged on non-residents who sell UK residential property at a profit, she did not know that it was necessary to submit a CGT return even if she made a loss. HMRC charged her a penalty of £1300.

The Tribunal said that she had no obligation to submit a Non-Residents CGT return at all – but even if she had, Miss Saunders would have had a reasonable excuse to relieve her from the penalty.

HMRC said she had no excuse, because:
non-resident individuals have an obligation to stay up to date with legislation in the UK.
Ignorance of the law is no excuse and she should have been aware of the changes effected by section 12ZB TMA 1970.
The obligation to file a Non Residents CGT return within 30 days of completion of the sale is not obscure or complex law.
The Tribunal rejected all these arguments in extraordinarily strong terms – including the words “claptrap” and “preposterous”.

The Tribunal even pointed to the fact that in their published materials on this subject, HMRC explained the requirements incorrectly – which rather supports the proposition that the law must be obscure or complex if HMRC did not get it right themselves.

An appeal would seem to be likely, but in the meantime, there has been a further decision from the FTT - Hesketh v HMRC TC 6266 - where the Tribunal upheld a penalty for the non submission of a NRCGT return, taking the view that the cases of Rachel McGreevy and Patsy-Anne Saunders were wrongly decided. This might be said to be further evidence that the law is obscure or complex if even Tribunal judges get it wrong.

It is difficult to know what the taxpayer (or non-taxpayer) is supposed to do when diligently trying to fulfil their tax obligations, when they are faced with these conflicting decisions. The imposition of penalties in such circumstances does nothing to enhance the public perception of the fairness of the tax system or of those who are responsible for its operation. Some clarification or a sensible practice statement would clearly be welcome.

pldazzle
Posts:3
Joined:Mon Apr 23, 2018 6:37 pm

Re: NRCGT return

Postby pldazzle » Tue Apr 24, 2018 4:36 pm

HMRC said she had no excuse, because non-resident individuals have an obligation to stay up to date with legislation in the UK. Ignorance of the law is no excuse and she should have been aware of the changes effected by section 12ZB TMA 1970.

Thank you etf, and a tip of the hat to Peter Vaines. My point was that HMRC's contention that "non-residents have an obligation to stay up to date with legislation in the UK" appears to have been been swallowed wholesale by the various judges, without considering whether that is a "reasonable" contention or whether it is "reasonable" for a non-UK resident to be expected to comply with it.

pldazzle
Posts:3
Joined:Mon Apr 23, 2018 6:37 pm

Re: NRCGT return

Postby pldazzle » Tue Apr 24, 2018 5:00 pm

The history and application of the maxim has been discussed in depth.
Indeed, but not with specific reference to its applicability to non-residents. NRCGT affects a new cohort of largely unsophisticated lay people who, because of their non-residence alone, are (I would suggest) much more likely than UK residents to be blissfully ignorant of UK tax law. (And who, other than HMRC and perhaps yourself, could really blame them.) It is a cohort to which the test of "reasonableness" has not yet, so far as I am aware, been separately applied. On the basis that it is only to be expected that their level of compliance will be lower than that of UK residents, query whether the bar should not "reasonably" be set at a different level.

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Wed Apr 25, 2018 3:34 pm

I've just skim read about another NRCGT tribunal loss for HMRC. And the appeal was allowed for yet another reason. One flagged in earlier posts on this thread (based on the thoughts of probably the best known expat tax adviser in the country).

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j10428/TC06446.pdf

One hopes HMRC will not continue to drag their heels and ignore the warning signs in the same manner exhibited by their counterparts in the Home Office. Please just treat all taxpayers even handedly.

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Wed Apr 25, 2018 4:24 pm

Whilst welcoming the tribunal decision in the Hart case, I'm not sure I totally follow the paragraph below. As I've mentioned previously I'm not legally trained, but when I took my tax exams I've got a vague recollection that whilst not required to demonstrate a detailed knowledge of non-tax issues, you had to at least flag something that might be important e.g. a lecturer suggested a spouse might like to consider whether it is sensible to gift property to their other half if he/she was subsequently likely to run off with the milkman/woman (they still existed when I trained).

Presumably when you take legal exams the same principle applies so that whilst a lawyer/conveyancer would not be required to fill in an NRCGT return, they should at least flag the NRCGT filing requirement. Perhaps someone legally trained could confirm whether I'm on the right track here.


As regards the solicitor, I do not think that there is any evidence that Mr Hart
had engaged the solicitor to provide comprehensive tax advice in relation to the
disposal of the Property. It is usual for a solicitor to advise in relation to stamp duty
land tax returns, but I think it would be unusual for a conveyancing solicitor, unless
explicitly instructed to do so, to advise more broadly on tax issues. On this basis, I do
not think there are any grounds for concluding that Mr Hart could reasonably have
been expected to receive advice from the solicitor in relation to the need to file a
NRCGT return

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Wed Apr 25, 2018 5:23 pm

I found this on the accountingweb forum, which suggests clients should be able to rely on their legal advisers to flag the NRCGT filing requirement. It would be good to receive confirmation of this point from others who are legally trained though:

These latest judgments aren't particularly well written (the judge even confuses the two taxpayers at para 145 of the Hesketh case) and the judge misses the basic point that under contract law (and tort) conveyancing solicitors have a duty to alert their clients of such tax bear traps and the need for specialist tax advice if necessary (even if it's outside the scope of their engagement letter)

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Mon Apr 30, 2018 2:34 pm

Yikes!

43.57 % of NRCGT returns filed in the last quarter ended 31 March 2018 were late (1,732 out of 3,975 returns filed).

46 1st stage appeals were accepted in the quarter and 9 2nd stage appeals were accepted either in whole or in part.

Whilst the % of late filed returns is truly at an eye watering level, I find the second statistic even more interesting. Regular readers will recall that in the period 8 May 2016 to 31 December 2017(say round up to 20 months) a total of 772 appeals were allowed i.e 39 appeals per month. In this most recent quarter, that figure has dropped to 18 appeals per month (55/3).

One potential explanation for the significant decrease in the number of successful appeals per month might be, that in the earlier period, HMRC accepted ignorance of the filing requirement as a reasonable excuse (detailed evidence on this thread suggests this statement is true). More recently, HMRC has not been accepting ignorance as a reasonable excuse which potentially suggests they have not been treating taxpayers even handedly as they are required to do under the Taxpayers Charter.

Of course, if HMRC kept records of the reason why appeals were accepted, this theory could easily be discounted as absolute fiction, or alternatively, proven. Unfortunately, HMRC's viewpoint is there is no business need to record reasons why appeals are accepted on a central database and therefore my current belief that there may be a John Grisham sub plot lurking below the surface here remains. Unless the evidence of ignorance being allowed as an excuse on this thread is fake, why would a reasonable person think otherwise?

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Wed May 02, 2018 7:11 pm

HMRC updated guidance:

The non-resident Capital Tax Gains return is being updated.
You should report disposals between 6 April 2018 to 5 April 2019 in the ‘Disposal between 6 April 2017 and 5 April 2018’ box.

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Mon May 07, 2018 5:09 pm

I found this summary of the Jackson NRCGT tribunal case using the following link (the bulletins appear to be a very readable method to keep up to date):

http://www.fieldtax.com/barristers/peter-vaines/uk-tax-bulletins/

Non Resident CGT Return: Penalties
We have yet another of these cases where HMRC were claiming a substantial
penalty for the failure to submit a Non Residents Capital Gains Tax Return within
30 days of completion of the sale, notwithstanding that no capital gain had been
made: Jackson v HMRC TC 6329
The trouble with legislation which is unreasonably harsh and capricious, is that the
courts bend over backwards to do something about it. Whilst one might say that
that is a good thing, the courts cannot override the express legislation, so they try
to find a way round it which is sometimes a bit imaginative - or sometimes they do
their own researches into the law.
So it was with the latest incarnation, the penalties for failing to submit a Non
Residents Capital Gains Tax Return and the case of Jackson where the Tribunal went
to some trouble to relieve the taxpayer after HMRC had charged penalties of £3,200.
Mr Jackson did not realise that there was a 30 day time limit; he was expecting to
submit his tax return in the normal way. However, he did submit the returns
immediately he was told that the time limit was 30 days from completion,
notwithstanding there was no gain and no tax to pay.
The Tribunal explained that the penalties are laid down in legislation and they have
no power to amend the penalties even if they were disproportionate, harsh or
unfair; there were no special circumstances and generally it was really difficult to
see why the penalties should not apply. The taxpayer acknowledged that he had
missed the 30 days submission deadline and that it was his intention to submit
these details in accordance with his normal tax return by 31st January in the following year.
However, the Tribunal observed that HMRC had overlooked paragraphs 1(3) and
17(3) of Schedule 55 Finance Act 2009 which say that where there are multiple
penalties, the aggregate of those penalties must not exceed 100% of the liability to
tax. In this case the tax was zero so the penalties were reduced to nil.
These penalties should obviously not have been imposed in the first place, and it is
indefensible for HMRC to overlook the relieving provision and continue to charge
the penalties which are contrary to the law.
There is nothing amusing in the irony that HMRC were claiming that the taxpayer
had made an error and should therefore be harshly penalised - but where HMRC
make an error, this of course, goes unpunished

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: NRCGT return

Postby etf » Tue May 15, 2018 11:40 am

As regards the solicitor, I do not think that there is any evidence that Mr Hart
had engaged the solicitor to provide comprehensive tax advice in relation to the
disposal of the Property. It is usual for a solicitor to advise in relation to stamp duty
land tax returns, but I think it would be unusual for a conveyancing solicitor, unless
explicitly instructed to do so, to advise more broadly on tax issues. On this basis, I do
not think there are any grounds for concluding that Mr Hart could reasonably have
been expected to receive advice from the solicitor in relation to the need to file a
NRCGT return

To support my contrary view to the point made by the Judge in the Hart tribunal case (see above), I have un-covered the following paragraphs in an article in Taxation magazine:

Solicitors can breathe another sigh of relief that it is only the person liable to CGT who is responsible for delivering a return to HMRC.

However, some duty of care will still apply to flag the issue.

This suggests my own understanding, that solicitors/conveyancing agents acting for non-UK residents selling UK residential property, do have a duty of care to flag the NRCGT return filing requirement, is correct. Assuming we can get over this first hurdle, then the defence highlighted previously in this thread and copied below can come into play:

The point is that thousands of people are getting penalised for just following the instructions, or lack of instructions, from their solicitor/conveyancer. If it were a few, you would suggest that the lawyers were at fault. As it is so many you have to say that the taxpayer themself is not at fault as the solicitor has not advised them, and the solicitor is not at fault as it clearly is not something widely known amongst solicitors and property conveyancers. Many of them clearly do of course, but the stats show how poorly this has been rolled out.


Any viewpoints on this analysis whether critical or suppotive are welcome. Given the spike in the percentage of late filings last quarter (from an already very high base) it appears this problem is not going to go a way in the short term. If you were one of the 1,732 late filers in the last quarter please share your experience because without further public pressure HMRC seem happy to sit on their hands and continue to pocket the large resulting penalties.


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