Unexpected consequences arising from Covid
Anthony Lampard provides an overview of issues arising within HMRC as a result of the Government’s reaction to the Covid-19 pandemic.
Individuals who move to the UK for the first time need to register with HMRC and to apply for a Unique Taxpayer Reference number (UTR).
Rental of UK property by a non-UK tax resident
Where a non-UK resident is receiving rent from a UK property, they need to register under the non-resident landlord scheme (NRLS). Failure to do so results in the tenant or agent having to pay the tax (20% of the net rental profits) over to HMRC. This may have cash flow implications for the landlord as under the NRLS the tenant can pay gross.
Sale of a UK property by a non-UK resident
Finally, when a non-resident individual sells a UK property, they need to submit a tax return and pay the tax within 30 days of the transaction being completed. This deadline also applies to UK residents selling UK property.
The Office of Tax Simplification (OTS) has recently highlighted that this is an exceptionally tight deadline and suggests it is extended to 60 days.
Further issues arise for those non-residents who have not previously rented out the UK property that they have sold. In such cases they are unlikely to have a UTR number and because they have not previously had a UK tax filing obligation they will not have completed a form 64-8, which gives HMRC authority to speak to their tax adviser.
Generally, HMRC wants the capital gains tax return to be filed online, but this can create problems where the taxpayer neither has a UTR or a national insurance (NI) number. In those circumstances there is a need to request a paper return. However, HMRC should not in theory speak to an adviser unless there is a form 64-8 in existence.
HMRC are under unprecedented pressure at the moment – due largely to the fact that many offices have simply shut down for the past 12+ months. Backlogs are bound to occur and this is now happening.
Prior to Covid, it was taking about 4-6 weeks to receive a UTR, it is now taking about 4-5 months to receive.
In the case of NRLS, approval would normally be forthcoming within 3-4 weeks. This is now extended to a number of months. In some instances, there is a need to submit more than one application, as HMRC are unable to find the original application. This has cash flow implications for the landlord, in that they can’t receive the rent gross until HMRC have approved the application.
Where the seller of the UK residential property has not previously had a UK filing requirement, there is a need to submit both a form 64-8 and also a request for a UTR number. However, the 64-8 will not be approved by HMRC until a UTR number has been issued.
A practical problem is that a non-resident can struggle to make a tax payment where they don’t have either a UTR number and/or a NI number. This is because the payment can’t be linked to the taxpayer’s account. Therefore, any tax payment is likely to be placed in an unallocated payments account and then there is the subsequent issue of being able to tie up this payment to the taxpayer’s account later.
Deferring payment is likely to result in interest and penalties being demanded once the tax is paid and further correspondence with HMRC to have these removed. It is not always certain that the interest and penalties will be waived.
Moral of these stories
Taxpayers and their advisers need to be proactive to try and minimise the delays in receiving the necessary approvals from HMRC. Applying sooner rather than later is the motto here.
There is a need to remind non-resident clients who own UK property of the tax filing deadlines and seeing whether some of the information can be gathered in advance of a sale.
There may be a benefit in considering whether it is possible to request a UTR and submit a form 64-8 now, rather than waiting for when the UK property is sold.