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Overview

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.

HMRC check 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 your premises and assets, audit records or check the systems in place.

Compliance checks following an HMRC inspection

HMRC makes inspection visits to check samples of records kept by:

• securities dealers
• unit trust schemes
• 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鈥檛 usually mean that HMRC doubts the accuracy of your CREST transaction inputs or your SDRT notices.

HMRC will normally try to give you at least 3 weeks notice of an inspection visit. If the suggested date isn鈥檛 convenient for you they鈥檒l 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鈥檒l 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鈥檝e discovered that any additional SDRT should have been paid or included in earlier notices you should say so at the start of the visit.

Records you need to keep

You need to keep information about each SDRT transaction so that if HMRC asks, you can show that the transaction was completed correctly. You鈥檒l also need to keep information about payments, receipts and details of any financial arrangements. You should store the records in a way that鈥檚 suitable for you or your business.

You should keep your records for a minimum of 4 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鈥檒l need to keep them for at least 6 years.

Recommendations following a visit

The auditors will give you a brief summary of their findings at the end of their visit. They鈥檒l 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:

• what they鈥檝e examined
• the extent of the work done
• their findings
• their conclusions and recommendations

If errors are found

If HMRC finds an error they鈥檒l 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.

Compliance checks following a reported error or late notification

If you tell HMRC that you鈥檝e made a mistake in your SDRT payment or if you notified a transaction late, they鈥檒l 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鈥檒l tell you their decision about what should happen next.

Possible outcomes of a compliance check

If there鈥檚 nothing wrong

Whatever the reason for a compliance check, if there鈥檚 nothing wrong HMRC will tell you that the check is over and no further action will be taken.

If an error is found

If HMRC finds an error, they鈥檒l explain what they think is wrong and why. They鈥檒l work with you to find out what caused it and how to prevent the same mistake happening again.

However, they鈥檒l charge a penalty if the reason for the error is due to:

• a careless mistake on the SDRT notice
• an SDRT notice you submitted that you knew was incorrect
• an SDRT notice that you knew was incorrect and you did something to hide the inaccuracy

You鈥檒l be able to let HMRC know about anything that could reduce the amount of the penalty if you think these haven鈥檛 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鈥檛 stick to the agreement, you鈥檒l 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鈥檛 reach agreement

If you can鈥檛 agree the amount of the tax, interest and penalty with HMRC, they鈥檒l issue a 鈥榥otice of determination鈥�. You鈥檒l have to pay interest on the tax charged by the notice from the date it should have been paid until the date it鈥檚 actually paid.

HMRC can also make a 鈥榩enalty assessment鈥� if they think a penalty is due but you don鈥檛 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鈥檒l get interest on any amount you鈥檝e overpaid when and if it鈥檚 repaid to you.