HM Revenue & Customs (HMRC) aims to ensure that Stamp Duty Reserve Tax (SDRT) is operated fairly and that everyone pays the right amount of tax at the right time. As part of this process they sometimes make enquires into SDRT transactions. These are known as compliance checks.
This guide explains when and why HMRC might check an SDRT transaction. It tells you about the possible outcomes and what you can do if you can't reach agreement with HMRC. It also provides links to more detailed guidance.
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HMRC carries out compliance checks to make sure the correct amount of SDRT is paid at the right time. They do this by checking that claims for repayment and to SDRT relief are correct and they may ask you or third parties for further information They also make inspection visits to look at the premises and assets, audit records or check the systems in place.
HMRC makes inspection visits to check samples of records kept by securities dealers, unit trust schemes and open-ended investment companies. They check that records are complete and correct, and that the SDRT regulations are being operated effectively. Most inspection visits are routine, so a visit doesn't usually imply that HMRC doubts the accuracy of your CREST transaction inputs or your SDRT notices.
HMRC will normally try to give you at least three weeks’ notice of an inspection visit. If the suggested date isn't convenient for you they'll try to arrange another one within a reasonable period. You can ask your professional adviser to be with you during the visit.
At the visit you'll need to have all your SDRT records ready for the auditor to check. It will help if you explain anything special or unusual about your record keeping system. And if you've discovered that any additional SDRT should have been paid or included in earlier notices you should say so at the start of the visit.
You need to keep information about each SDRT transaction so that if HMRC ask you can show that the transaction was completed correctly. You'll also need to keep information about payments, receipts and details of any financial arrangements. You should store the records in a way that is suitable for you or your business.
You should keep your records for a minimum of four years from the effective date of the transaction as HMRC can start a compliance check at any time during that period. If the effective date was before 1 April 2011 then you will need to keep them for at least six years.
The auditors will give you a brief summary of their findings at the end of their visit. They will make informal recommendations about any improvements to your systems which appear necessary.
Whether or not they find anything wrong HMRC will also send you a full report of the visit, usually within 28 days. This sets out:
If HMRC finds an error they will ask you for more information to find out what caused the error and to help them decide whether they need to collect additional tax, interest and a penalty. The possible outcomes of this check are covered later in this guide.
If you tell HMRC that you've made a mistake in your SDRT payment or if you notified a transaction late, they'll make enquiries to find out the reasons for the error or late notification and payment.
They may need to ask you for more information about the transaction and about the way you dealt with it. They usually make these enquiries by letter. Once they have all the information they need they'll tell you their decision about what should happen next. The possible outcomes are covered below.
Whatever the reason for a compliance check, if there is nothing wrong then HMRC will tell you that the check is over and no further action will be taken.
If HMRC finds an error they'll explain what they think is wrong and why. They will work with you to find out what caused it and how to prevent the same mistake happening again.
However, they will charge a penalty if the reason for the error is due to any of the following:
You can read more about penalties by following the link to the guide 'Penalties and appeals - Stamp Duty Reserve Tax' at the end of this section.
You'll be able to draw attention to any matters that could reduce the amount of the penalty if you think these haven't been given enough weight. HMRC will take account of what you say and at this stage it will normally be possible to agree a final figure and discuss ways to pay.
If you don't stick to the agreement you'll have to pay interest on the amount due from the date when you should have paid it until the time when you actually pay it. If necessary, HMRC will consider taking court action to recover the debt.
If you can't agree the amount of the tax, interest and penalty with HMRC, they will issue a 'notice of determination'. You'll have to pay interest on the tax charged by the notice from the date it should have been paid until the date it is actually paid.
HMRC can also make a 'penalty assessment if they think a penalty is due but you don't agree.
You can appeal against a notice of determination or a penalty assessment. You should consider paying some or all of the additional tax charged by the notice while your appeal is dealt with to stop interest mounting up. You'll get interest on any amount you've overpaid when and if it's repaid to you.
You can read more about penalties and how to appeal by following the link below.