Society's urgent advice on SDLT

Solicitors faced with more obstacles by Revenue authorities

News, 11 August 2005

The Law Society of Scotland has issued an urgent letter to all solicitors in Scotland following an unannounced software change by HM Revenue and Customs (HMRC) which further adds to the difficulties surrounding submission of stamp duty land tax returns.

Last Wednesday HMRC removed the ability to add a future "effective date" on the SDLT return, which has left the profession unable to use the internet software to prepare the return in advance of a transaction's settlement date.

Dozens of solicitors have already contacted the Society for guidance. HMRC has refused to reverse the change which it claims should have been made last April, and is counting on e-filing of SDLT returns, now being trialled, becoming generally available. E-filing was also supposed to launch in April but at the last minute HMRC admitted that its software was nowhere near ready.

The full text of the Society's letter, signed by James Ness, the Deputy Director, Professional Pracice, reads:

"IMPORTANT NOTICE

PLEASE CIRCULATE TO COLLEAGUES AND BRANCH OFFICES

11 August 2005

Dear Member

Stamp Duty Land Tax

You are possibly aware that last Wednesday (3rd August) HMRC made changes to the software in connection with the completion of SDLT forms online. The facility to include an "effective date" in the future has been removed, and if the effective date is left blank the return is now marked "Incomplete" on every page and so may be rejected if sent to Netherton. Please note the following points:

1. For the avoidance of doubt this change was made by HMRC without any consultation with the Society and was not disclosed at the meeting between the President and senior officials of HMRC StampTaxes on the 20th of July.

2. The Society made immediate representations to HMRC requesting that they reverse this change as a matter of urgency given the difficult consequences for the profession of their being unable to use the internet "print and post" software to prepare SDLT returns in advance of settlement.

3. After some deliberation, HMRC have advised that they are unable to reverse the change and that the absence of consultation was because the change gave effect to changes made to HMRC regulation in April. Effectively the HMRC position is that the facility to future date forms online should have been removed in April and due to an error it was not. Last Wednesday they merely corrected that error and accordingly they did not regard it as a change upon which it was necessary to consult. Interestingly they advised that although they had the resources to make the change on Wednesday they no longer have the resources to make the change back again as their IT resources are now all devoted to development of e-filing of SDLT returns which they hope will solve the profession's difficulties.

4. A great many members have contacted the Society seeking guidance on this issue and having considered all the available options the Society would offer the following guidance

(A) An SDLT return can effectively be prepared in advance of settlement using the HMRC CD-ROM software. This works as follows:-

all relevant information other than the effective date is included and a so-called "agents copy" of the return is printed out, which is sent to the client for signature and return to the solicitor;
at settlement the solicitor inserts the effective date into the CD Rom software and a final copy of the return is printed out, which the solicitor then signs as agent.

Detailed guidance on the use of the CD-ROM can be found at www.hmrc.gov.uk/so/sdltcdrom.htm .

If you do not have a copy of the CD-ROM it can be ordered direct by telephoning HMRC on 0845 302 1472.We understand that the lead time for receipt of copies of the CD-ROM is seven days.

The Society has ordered a supply of 100 which will arrive shortly, so please contact us if you have difficulty obtaining a copy of the CD-ROM.

Please note that we did attempt to arrange for the files on the CD-ROM to be posted on our website but unfortunately the software is configured in such a way that there is no substitute for the CD-ROM itself. Each machine requires to have its own CD-ROM so you should order sufficient for your purposes.

(B) Paper forms can be completed with a typewriter or in pen and ink which obviously will allow future dating. The Society very much appreciates that this is potentially extremely inconvenient to members and that there is a significant risk of scanning errors with handwritten forms. We understand that submission in this method may result in scanning error rates as high as 40%. HMRC no longer have a manual processing unit and accordingly even handwritten submissions will be fed through the scanning equipment.

The Society fully appreciates that neither of these options is attractive but we would make the strong recommendation that members do NOT prepare forms on the day of settlement using the online service, unless the client will be present on the day of settlement to sign the SDLT return. There are two reasons why the Society is concerned about that practice:

(1) clearly if the form is prepared on the date of settlement and submitted to the client for signature on the date that the client is moving house, even the most diligent client will take a day or two to return the signed form, eating into the 21 days which the profession are well aware is currently insufficient in any event. If the client is at all dilatory in the matter a week could readily be lost;
(2) many lending institutions' instructions require that you are in a position to comply with SDLT requirements and register the disposition at the time of settlement. Clearly if you are not in possession of a signed SDLT form at the time of drawdown of the funds you may be in breach of this requirement. The professional practice department have on several occasions been consulted by firms who have settled a transaction involving loan funds and where the client has subsequently refused to sign an SDLT form, rendering it impossible to register the title and the security.

You will appreciate that we have made very strong representations to HMRC with regard to the extreme difficulty that this change has caused to the profession. HMRC remain of the view that they cannot undo this change and accordingly we will simply have to try and cope with it.

Accordingly, while the Society will continue to make representations on your behalf and to seek improvements in the service, members are encouraged to continue to take advantage of the special urgency 16th day service and the personal presentation service to ensure the minimisation of risk to themselves and their clients in the coming months.

You may be aware that e-filing of SDLT returns is currently being trialled by a number of legal firms, and it should not be too long before e-filing is generally available. E-filing will also allow the SDLT return to be effectively prepared in advance of settlement and then submitted on or after settlement by the solicitor as agent.

We can confirm that we will keep you advised of any future developments and we continue to investigate alternative procedures.

Yours sincerely

James Ness"