Stamp Duty Reserve Tax (SDRT) enquiries how settlements are negotiated
This guide tells you what happens at the end of an enquiry into your SDRT affairs. It describes our approach to reaching an agreement on the amount you owe.
An enquiry into your SDRT affairs may show that there is nothing wrong. In the event, the matter ends there.
You may however, have paid too little SDRT, paid it late, or sent in a late or incorrect notice, in which case interest and penalties may arise.
Cases involving penalties - how settlements are negotiated.
If there is evidence of an underpayment of tax due to fraudulent or negligent conduct, formal procedures could be used to pursue the tax, interest and penalties assessed to be due. But more probably you will be asked to make an offer to pay an amount, including interest and penalties, in settlement of the sum due.
The Auditor will tell you;
- what has been found and how much you are considered to owe
- how far he or she believes the underpayment or late payment of tax arises from fraudulent or negligent conduct on your part - you or your adviser may wish to reply here
- the maximum amount of penalties he or she thinks could be determined under formal procedures and the amount of interest you would pay.
Finally, the Auditor will explain that it is normal to ask someone in your position to offer to pay one sum for tax, interest and penalties, and you will be asked if you are prepared to make such an offer. If you are prepared to, the Auditor can suggest an amount.
How are the penalties calculated?
The penalty figure will normally be a percentage of the tax underpaid or paid late. In strict law it could be 100% of the tax, but in practice it will always be less in a negotiated settlement. The Auditor starts with a penalty amounting to 100% of the tax and that figure is reduced by an amount which depends on whether you disclosed all details of your tax affairs, the extent to which you co-operated over the whole period of the enquiry and the gravity of the offence. The reductions are as follows;
Disclosure - a reduction of up to 20% (or even up to 30% in certain circumstances).
If you have made a full and voluntary disclosure before the Auditor begins his/her inspection, you will get a considerable reduction of the penalty. If you deny until the last possible moment that there is anything wrong, you will get little or no reduction for disclosure.
Between these 2 extremes a wide variety of circumstances is possible - the Auditor will consider how much information you gave, how soon, and how that contributed towards settling the enquiry.
Co-operation - a reduction of up to 40%
If you supplied information promptly, attended meetings, answered questions honestly and accurately, gave all the relevant facts and paid tax on account when it became possible to estimate the amount due, you will get the maximum reduction for co-operation.
You could get none at all if you put off supplying information, avoided attending meetings, gave untrue answers to questions, did nothing until formal action was taken against you and generally obstructed the course of the enquiry.
Between these extremes there is a wide range of possible circumstances and the Auditor will compare the extent you have co-operated with the co-operation he or she believes possible.
Gravity - a reduction of up to 40%
Your actions may amount to a premeditated and well-organised fraud or something less serious. The Auditor has to take into account what you did, how you did it, how long it went on and the amounts of money involved. The less serious your offence, the bigger the reduction of penalty you can expect.
How does all this work in practice?
Say the Auditor has concluded that the reduction in penalty for disclosure is 15%, for co-operation 30% and for gravity 20%, giving a total reduction of 65%. The expected penalty will therefore be 35% (100% - 65%) and the calculation may look something like this:
- Tax underpaid £10,337
- Interest say, £4,165
- Penalty at 35% of tax underpaid £3,618
- Total £18,120
How can I negotiate the offer?
Usually, the tax and interest figures will have been agreed, this will leave only the penalty to be negotiated. You will have the opportunity to draw the Auditor's attention to any matters affecting the penalty figure which you think has not been given enough weight. The Auditor will then have to consider what effect these have on the settlement figure he or she had in mind, and will comment on any figure you might suggest. As a result, you may well be able to reach an agreement either straight away or after a few days consideration.
What happens after that?
If you agree to make an offer to include tax, interest and penalties, you have to sign a formal letter offering to pay the agreed sum within a stated period. You will then give or send that letter to the Auditor, who will issue a letter of acceptance.
This exchange of letters amounts to a contract between you and HMRC so that we are both bound by its terms.
With the acceptance letter you will receive instructions telling you how to pay any balance remaining. If you pay in accordance with the terms of the contract, the matter will be at an end. If you do not keep to the terms of the contract, interest will be charged for late payment and we may take action in the Courts to recover the whole amount due under the terms of the contract.
What can be done if I am unhappy about the way the inspection is being handled?
If, at any time, you believe:
- we have not followed our Code of Practice, or
- we have not been reasonable, or
- you have not been given your rights, or
- you have been treated badly in some other way during the inspection,
You can, in the first instance, contact our Office Manager (Compliance) at the Birmingham Stamp Office.
Telephone: Stamp Taxes Helpline
