LBTT: beware the crackdown

Ongoing engagement on land and buildings transaction tax (LBTT) takes place between the Society’s Tax Committee Property Tax Sub-group, Revenue Scotland and the Scottish Government policy team, to discuss matters relevant to property practitioners. Some issues of concern have been flagged in these discussions and, at this time, the group would like to remind solicitors of their responsibilities in respect of some particular requirements around LBTT.

“Arrangements satisfactory”

In terms of s 40 of the Land and Buildings Transaction (Scotland) Act 2013, LBTT must be paid to Revenue Scotland at the same time as the tax return is made. Section 40 also provides that tax can be treated as paid at the time of submission if “arrangements satisfactory” have been agreed with Revenue Scotland. This treats the tax as paid to allow the Keeper to accept registration of an application in terms of s 43 of the Act.

Solicitors currently enjoy arrangements satisfactory whereby, if the return is submitted before the effective date, the tax can be paid up to no later than the fifth working day after the effective date.

Where the return is submitted on or after the effective date, the tax must be paid no later than the fifth working day after the submission date or the last working day which is, or precedes, the 30th calendar day after the effective date, if this is earlier.

In practical terms, this means that cheques should be issued on the date of submission of the return and BACS payments made within 48 hours of submission of the return, to ensure that monies are received and cleared by Revenue Scotland within these timescales.

If a return is submitted close to the filing date (30 days after the effective date), therefore, the taxpayer or agent must ensure that full payment reaches Revenue Scotland no later than the filing date for the return. Interest is chargeable on any outstanding tax that is not paid by the filing date, and a penalty of 5% of the amount of tax will be due.

It is important to note that arrangements satisfactory are a concession and can be withdrawn.

Risk of withdrawal

Guidance from Revenue Scotland confirms that, in extreme cases, where there are repeated failures to honour commitments made under arrangements satisfactory, it may consider withdrawing arrangements satisfactory entirely for that taxpayer or agent. This would mean that payment would always have to be made by the taxpayer or agent on the same day as the LBTT return is made.

Revenue Scotland has confirmed that it will only take such action after warnings have been given and where there appears to be little alternative option.

Revenue Scotland reports that it has noted instances where firms are breaching the arrangements satisfactory. For those who have repeatedly done so, Revenue Scotland is likely to be in touch to discuss the requirements and to offer assistance to ensure that the arrangements are fulfilled in future. Where there are significant breaches Revenue Scotland may review the current concession. This could be for individual firms, but at worst the arrangement satisfactory concession could be withdrawn across the profession. This would mean that payment of the tax would require to be made at the same time as submission of the return. This would be unduly burdensome for all, and may cause delays in the registration of deeds following settlement.

Adhering to these requirements will mean that Revenue Scotland will continue to offer arrangements satisfactory for payment of LBTT.

Written authority to submit returns

The group also reminds solicitors of the need to obtain written authority to submit returns on a taxpayer’s behalf.

A draft of the completed return (in some cases, with the exception of the effective date and NI number if not known at the time) should be sent to the client with a request for their written authority for the agent firm to (1) complete the effective date and NI number where required, and (2) submit the return on their behalf.

The client taxpayer should also provide written confirmation that the information contained in the completed return is true and accurate to the best of their knowledge and belief. This written authority should be retained on file. Following submission, a copy of the final return should be retained by you and a copy sent to the client for their own records.

It is also important to advise clients that penalties are chargeable for submission of a late return (i.e. a return made after 30 days from the effective date) and also for late payments of tax.

Late returns and payments, and penalties

Revenue Scotland is also monitoring firms who are submitting returns late and those that are making late payments. Again, they may be in touch to try and understand why these filing and payment dates are being missed.

As members may be aware, Revenue Scotland has recently been issuing penalty notices for late submission of LBTT returns and also late payments of LBTT over the past two years. It is dealing with certain types of penalties in groups, not on a case by case basis, and firms may receive multiple penalties at the same time. Your client will also receive notification of the penalty direct from Revenue Scotland.