Stamp Duty Reserve Tax: penalties and appeals
When penalties are charged for late or incorrect Stamp Duty Reserve Tax (SDRT) notices, and how these penalties are worked out.
When SDRT is due on an agreement to transfer shares, HM Revenue and Customs (HMRC) must be notified and the tax must be paid by the due date - known as the ‘accountable date’.
If the notice and payment are late, or if either is incorrect, HMRC will usually charge you a penalty. In addition, interest is normally charged on the tax that’s overdue.
Notification and payment deadlines
Where SDRT is due on an agreement to transfer shares there’s a deadline for notifying HMRC and paying the tax. The deadline depends on whether the transfer was made through the CREST electronic system or an ‘off-market’ system other than CREST.
You’re responsible for paying the SDRT if you’re a stockbroker or a similarly qualified person buying shares for someone else. If you’re buying shares for yourself you’re responsible for paying the SDRT you owe.
Deadline for share transfers involving CREST
The deadline for notifying HMRC about a transfer of shares and for paying the tax is 14 calendar days after the date when the trade took place. This deadline applies to:
- CREST transfers (where notification and payment to HMRC is automatic)
- any transfer that could have been made through CREST but wasn’t
Deadline for off-market share transfers
When shares are transferred off-market using a system other than CREST - and the transfer couldn’t have been made through CREST - the deadline for notifying HMRC and paying any tax due is the seventh day of the month following the month when the trade took place.
For example, if a trade took place on 19 April 2010 then the deadline would be 7 May 2010.
If the transfer could have been made through CREST the deadline is 14 days after the transaction - the same as if it had been made through CREST.
You must work out the tax due and send the notification and payment to HMRC. There are several different ways of paying HMRC, including electronically. If you don’t notify HMRC and pay any tax due by the deadline then it’s likely that a penalty will be charged.
How to avoid penalties
HMRC expects you to take ‘reasonable care’ in completing SDRT notices and making payment at the correct time. If you took reasonable care but still made a mistake, HMRC may not charge a penalty or the amount of the penalty may be reduced.
Examples of reasonable care include:
- making sure your SDRT notice is accurate and sending it into HMRC on time - this includes ensuring all claims to reliefs and calculations are correct
- keeping sufficient records to support your SDRT notice and any claims to reliefs
- providing HMRC with all the information they need when they ask
- asking HMRC if you’re not sure about anything and following any advice they give you
If you find you’ve made a mistake - or not told HMRC something you should have - you should tell them immediately. This may reduce the amount of penalty you face or may mean you don’t have to pay one at all. What reasonable care means will depend on your circumstances.
If you don’t agree with a penalty HMRC has charged your company or organisation, you can appeal it.
Penalties for missing a notification or payment deadline on or after 1 January 2015
You are liable to a penalty if you fail to notify HMRC by the notification deadline date. The penalty starts from the day after the notification deadline date. You’ll get an initial penalty of £100 and you’ll have to pay more if the delay continues.
The penalties are summarised below.
|When the penalty becomes due||Penalty due|
|From the start of the penalty date||A penalty of £100|
|6 months from the penalty date||£300 or 5% of the undeclared tax, whichever is greater. This is in addition to the initial £100 penalty above|
|12 months from the penalty date||£300 or 5% of the undeclared tax whichever is greater. This is in addition to the penalties above|
HMRC can also charge additional daily penalties of £10 per day for up to 90 days if your failure to notify the transaction continues for more than 3 months. However HMRC is obliged to let you know before you send your notification if you are liable to daily penalties and these cannot be charged retrospectively.
Normally HMRC will be unaware when you purchase shares until you send your notification. This means that HMRC will not be able to send you a notice stating that daily penalties will be charged in advance of your notification.
Therefore, it is unlikely that you will be charged daily penalties except for example, when HMRC receives information that a transaction has taken place but your share notification is not received within 3 months of the penalty date.
The amount of the penalty 12 months from the penalty date depends on the reason for the delay, such as you withheld information deliberately. Where HMRC do not know the reason you will normally be charged the minimum penalty of 5% of the unpaid tax or £300 as stated in the summary table above.
Further guidance about how HMRC calculates a penalty, the penalty ranges and penalty reductions can be found in the Compliance Handbook
Your notification is received 16 months late, you didn’t withhold information deliberately and the tax due is £20,000. You will be charged the following penalties:
- £100 initially
- then a further £1,000 because your notification is 6 months late, (5% of the undeclared tax)
- plus a further £1,000 because your notification is 12 months late, (5% of the undeclared tax)
leading to a total late notification penalty of £2,100.
You are liable to a penalty if you fail to pay HMRC by the payment due date.
|Penalty date||Penalty due|
|31 days after the due date for payment||5% of the unpaid tax|
|5 months after the penalty date
(ie 5 months and 31 days after the due date for payment)
|A further 5% of the unpaid tax|
|11 months after the penalty date
(ie 11 months and 31 days after the due date for payment)
|A further 5% of the unpaid tax|
The tax due is £20,000 and your payment is 16 months late. You will be charged the following penalties:
- then a further £1,000 because your payment is 5 months after the penalty date, (5% of the unpaid tax)
- then a further £1,000 because your payment is 12 months after the penalty date, (5% of the unpaid tax)
leading to a total late payment penalty of £3,000.
You will be charged the late payment penalty in addition to the late notification penalty. For the transaction to which the two examples above relate, the total of the two penalties charged will be £5,100.
Penalties if you miss a deadline before 1 January 2015
Late payment and notification within 12 months of the deadline
If you notify HMRC and pay SDRT within 12 months of the deadline, the penalty will be the lesser of £100 or the amount of tax that’s due.
You’ll usually also have to pay interest on the tax that’s due - as well as the outstanding tax.
This penalty potentially applies to each transaction for which you miss the deadline.
Late payment and notification more than 12 months after the deadline
If you notify HMRC and pay the SDRT more than 12 months after the deadline, an additional penalty will be charged.
This penalty can be as much as the total amount of tax that’s due, but it may be reduced. The amount it’s reduced by will depend on:
- the reasons for the delay or error
- how well you co-operated with HMRC to put things right
- the seriousness of the issue
You’ll have the chance to give the reasons why you think the penalty should be reduced and to negotiate an agreement with HMRC on how much the penalty should be.
So the penalty for notifying and paying HMRC for a transaction more than 12 months after the deadline would be the total of the following:
- another amount that could be as much as the tax that’s due
You also have to pay interest on the tax that’s due - as well as the outstanding tax.
The way penalties are calculated for incorrect notices changed for all transactions made on or after 1 April 2010. This brings SDRT charges in line with penalties for other taxes.
Penalties for incorrect notifications or payments
An SDRT notification or payment might be wrong because of a mistake or something done deliberately.
HMRC audits and inspects CREST users and others involved in the share transfer market. If they find you’ve made an error in an SDRT notification, or paid the wrong amount of tax, you’ll probably have to pay a penalty as well as any tax that’s due. You’ll also have to pay interest.
This also applies if you find an error yourself. If this happens, you must contact HMRC to report the error and explain how it occurred.
How the penalty is worked out
The penalty can be as much as the total amount of tax that’s due, but it may be reduced. The amount it’s reduced by depends on whether your error was:
- carelessness - for example, a mistake on the SDRT notice
- deliberate - you submitted an SDRT notice that you knew was incorrect
- deliberate and concealed - such as intentionally sending incorrect information and taking steps to hide the error
If you disagree with a penalty amount
Negotiating an agreement with HMRC
You’ll have the chance to say why you think the penalty should be reduced and to negotiate an agreement with HMRC about how much it should be. In most cases agreements are reached and you’ll be asked to confirm the agreement in writing by signing and returning a formal letter.
If you can’t reach an agreement
If you can’t agree with HMRC over how much the penalty should be, they’ll issue a ‘determination notice’. This will state how much the penalty should be, based on HMRC’s best judgement. If you still don’t agree you can appeal.
You can’t appeal against a late payment interest charge
Appealing against a penalty
You have the right to appeal against any SDRT penalty that you disagree with. You must do this in writing within 30 days of receiving the penalty notice.
Include any reference number you have in your appeal letter. Mark your letter ‘Stamp Duty Reserve Tax’ and send it to HMRC Birmingham Stamp Office.
Most appeals are settled by reaching an agreement with HMRC. But if you’re unable to agree a settlement there are other options. You can ask HMRC to review their decision, or you can ask an independent tribunal to consider your appeal.
Interest on late payments
If you pay SDRT late, you’ll have to pay interest on the amount of tax that’s overdue. HMRC charges interest at the official rate set by HM Treasury from the date when the tax became due until the date when it’s actually paid.
If you disagree with a late payment interest charge
Interest isn’t a penalty - it’s a commercial charge to compensate HMRC for not getting the money when they should have. So you can’t appeal against the charge.
But if you think you shouldn’t be charged any interest, or if you think you’ve been charged too much, you can write to the SDRT team at the HMRC Birmingham Stamp Office to explain why.
Mark your letter ‘Stamp Duty Reserve Tax’ and include any reference number you have.