In the world of tax policy, August can sometimes be a quieter month. With Parliament in recess and fewer HMRC meetings, it can be an opportunity to catch up and plan for the rest of the year. Alas, not so this year, with the ATT receiving a constant stream of queries about the complexities of the Trust Registration Service (TRS) as members have struggled to get trusts registered before the September 1, 2022 deadline.
To date, these queries have largely fallen into three categories – is this situation really in scope, what do I do with this complex estate, and why doesn’t the system work for me? While we can’t give advice on individual client scenarios, the questions raised have helped to identify wider points where it would be helpful to have further detail in HMRC’s manual and we’ve made a number of requests to HMRC’s policy team for just that.
Now we are in September, the query I expect to dominate is – what happens if my trust has missed the registration deadline? My sense is that many advisers, head down in work, missed the new manual pages published by HMRC in early August concerning penalties but should be aware of HMRC’s position.
Under the rules prior to October 2020, only trusts which paid certain taxes (including income tax, CGT, and SDLT) needed to register on the TRS. Late registration penalties were simple, starting at the usual £100 for missing the deadline. But since the expansion of the trust register to include non-taxable trusts, we’ve been in a bit of limbo about penalties – although HMRC’s position has always been that they would follow the proposals set out in a consultation dating from January 2020. This proposed a nudge letter, rather than a financial penalty for the first offence of failing to register or update details, with £100 fines for subsequent offences. Where behaviour was deliberate, then there would be a fine of a then unspecified amount – which could also apply to first offences which were deliberate.
HMRC’s latest published position reflects this in part. There is a strong focus on penalising deliberate behaviour, but slightly oddly, HMRC appears to have fixed the penalty for deliberate offences at a flat £5,000. The underlying legislation allows HMRC to impose an ‘appropriate’ penalty – i.e. one which is ‘effective, proportionate and dissuasive’. It is not clear that a flat amount meets these requirements and it is a concern we will be raising with HMRC.
Where behaviour is not deliberate, there is no sign of the expected £100 administrative penalties – again something we will be following up to confirm. It is good to see though that the proposal of a ‘nudge letter’, rather than an immediate financial penalty, for a first offence of failure to register or maintain the register has been carried through – although now badged as a warning letter.
Hopefully this approach of warning trustees before issuing penalties (as long as behaviour is not deliberate) will be reassuring for those still working through a backlog of registrations, or who turn up an unregistered trust in the future.
Beyond September 1
The deadline of September 1, 2022 was relevant to non-taxable trusts in existence at October 6, 2020 (and those created before June 4, 2022) which did not fall into one of the exclusions. Now we are past that deadline, it’s also important to understand how the rules will apply to more recently created trusts.
From June 4, 2022 any new, non-taxable trust which is brought into existence must be registered within 90 days of being set up – unless the trust is on the list of trusts excluded from registration requirements. The deadlines for taxable trusts is much more complicated, but any taxable trust set up after June 4, 2022 will also need to register within 90 days. Similarly, most non-taxable trusts which start to pay tax now will also need to tell HMRC within 90 days of the change to update their entry from non-taxable to taxable.
Once details have been supplied, the TRS also needs to be kept up to date. Changes to the details of beneficial owners (so the settlor, trustees and beneficiaries) must be updated within 90 days of the trustees becoming aware of the change. (Trustees of taxable trusts also have a separate, pre-existing requirement to review the data held annually.) Again, this requirement to keep information up to date actually took effect before September 1, 2022, but I suspect this may have been lost in the push to deal with the backlog of registrations.
There is though one new requirement that comes in from September 1 – discrepancy reporting. Advisers such as accountants, solicitors and tax advisers who are taking on a new trust client should, as part of their anti-money laundering checks, confirm that the trust is on the register (if it is required to be) and that the details held there match any information which the agent has been supplied with. Trustees should be able to provide the agent with a ‘proof of registration’ document downloaded from the TRS to evidence their registration.
Where there are material discrepancies (the most common one, no doubt, being the absence of the trust from the register) then agents are being encouraged to try to resolve this with the trustees first. If this is not possible, then a new online service has been set up to allow agents to report such discrepancies to HMRC. In serious cases, where the agent believes that any discrepancies are the result of deliberate actions intended to conceal Money Laundering or Terrorist Financing, the agent may also need to make a Suspicious Activity Report.
Although the September 1 date has been and gone, there is still a lot of work around the TRS for advisers who deal with trusts.
Given that we have not yet had answers on a number of tricky policy areas, it is quite possible that HMRC guidance will be updated again later this year, so advisers will continue to need to keep an eye out for updates which might affect their clients.