Finance Committee

Meeting date: Wednesday, October 30, 2013

Official Report 459KB pdf

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Land and Buildings Transaction Tax (Implementation)

As we are all finally here, our next item of business is to take evidence on implementation of the land and buildings transaction tax from Eleanor Emberson of revenue Scotland and John King of Registers of Scotland. I welcome our witnesses and thank them for their patience; the earlier session ran on longer than we had anticipated it would. I invite one of you to make a brief opening statement.

We do not have an opening statement. As promised, I wrote a letter to you at the beginning of the month to update the committee on where we are. We have nothing to add to that, so we are happy to respond to your questions on it.

After keeping you waiting for so long, I am mischievous enough to say that we have no questions, given that you are not going to give us a statement. However, I will kick off with one or two questions and we will see how things progress—I am sure that there will be a mad rush from colleagues.

First of all—he says, trying to regain his thoughts—we mentioned in our report that the resource plans for revenue Scotland are still at a fairly early stage, but revenue Scotland believes that it has made adequate allowance in its plans for what it calls compliance activity. Can you update us on that, for the record? Although the letter covers some of the issues, it is important for the Finance Committee that those points are highlighted in the Official Report. Can you talk about that matter for a wee minute?

Sorry, just so that I know what question I am answering, do you want to understand what we are doing about compliance?

Yes.

Many things might come under the heading of compliance. Basic things include ensuring that payments come in as they should. There are also activities to check that people have not done anything improper—whether deliberately or accidentally—in the way that they have self-assessed for the tax. Checking is also done to ensure that nothing has been omitted, so data sets are reviewed to understand what is going on.

We are working through all that and deciding what the boundaries should be between what Registers of Scotland will do and what revenue Scotland will do. Given that Registers of Scotland will do the front-line collection of the tax and obviously has a lot of experience in the property market because of the nature of what it does, there are certain things on which we can bring its experience to bear that will help us with analysis of transactions, and identify transactions in which there might be queries and so on.

There will be other activities, for example, if there were any need to pursue bad debts or analyse data sets, where it is less obvious that they would naturally fall to Registers of Scotland, so revenue Scotland will take on such responsibilities.

“Compliance” is quite a broad term. A number of strands of work are going on. In some of that work—I know that it is of interest to the committee—we are looking at which things are done by Registers of Scotland and which are done by revenue Scotland.

I echo what Eleanor Emberson has said. We have always viewed Registers of Scotland as having a fairly light-touch role in terms of compliance. We have always envisaged that our information and data-sharing role would help revenue Scotland. We see ourselves having a more direct role around the margins when, for instance, a tax return has been submitted late, so that it has failed in terms of compliance to meet a legislative requirement and there may therefore be a need to issue some kind of notice—it could be a penalty notice, for instance.

HM Revenue and Customs’s view is that things at that end of the compliance spectrum tend to be automated and tend to be part of the collection system. That tends to work conveniently for both the tax authority and the customer. A lot of our thinking is around those more de minimis elements of compliance.

The ideas of a helpdesk and guidance were covered quite extensively in our report. A lot of witnesses said to us that when you phone up the HMRC for help and advice, you do not get it. There is concern about ensuring that the appropriate staff are trained and that the public know what number to contact. Where are we in relation to providing a one-stop shop, if you like, which would be preferable to a two-stop shop, for delivery of information and advice on the LBTT?

I will let John King speak about the helpdesk, because we envisage that the main helpdesk provision will be through Registers of Scotland, which already has a helpdesk, on which it can build, for property transactions. You also mentioned guidance. Those are different facets of the same issue. It is about putting good information out there to ensure that as many questions are answered as easily as possible, so that people do not even need to contact a helpdesk because the answers are all there. However, we must also ensure that there is good helpdesk provision for any questions that people have.

Revenue Scotland will obviously take the lead on the guidance. We have made a start on it, but the committee will understand that we cannot finalise it or get everything in place because some aspects will depend on not only the Land and Buildings Transaction Tax (Scotland) Act 2013 but the forthcoming revenue Scotland and tax powers bill, which has yet to come before Parliament and the committee. Once that bill is being considered, we will push on with producing guidance on various aspects. We expect to make that easily available, so people would be able to go online or to get access through their solicitor or accountant if they are taking advice from their agent on the tax. Then, if they still have questions, they will be able to contact the helpdesk. John King will speak about that.

We have set up a stakeholder group within the LBTT project at the Registers of Scotland. The group has two main functions; one is to provide advice to us on what guidance the profession will need, both in writing and through access to a helpdesk, and the other is to help us with the build and development of the system.

As the committee will be aware, Parliament has passed the Land Registration etc (Scotland) Act 2012, which we anticipate will come into effect late next year. We have already identified a need to expand our helpdesk to ensure a smooth transition from the old system of land registration to the new system, and we will also use that helpdesk as the basis for the future needs for the LBTT. We have done a significant amount of work, both with our stakeholders and with HMRC, to identify issues that may arise and on when the need for access to the helpdesk may arise, and to validate some of our initial assumptions around staffing for a helpdesk. We feel that our initial assumptions remain valid.

We take heart from the positive fact that the LBTT act is a lot simpler to understand from a customer perspective than the current stamp duty land tax legislation. That should also reduce the need for access to guidance and to a helpdesk, but we are aware that people will still want a helpdesk.

Historically, when Registers of Scotland has implemented new legislation, we have always issued guidance and done a lot of active one-to-one stakeholder engagement. What that engagement tells us is that although the guidance has value, people still want access to a helpdesk, so that is very much at the forefront of our thinking. As Eleanor Emberson said, our assumption is that, because of the linkage with land registration, inquiries will come through the ROS helpdesk.

Our intention is that the helpdesk will answer as many questions as possible up front. We recognise that there will be some more complex matters that would still fall to Registers of Scotland to answer, and which would be referred to a second-line system of support. We also recognise that there will infrequently be especially complex tax policy matters that may have to be referred to colleagues at revenue Scotland.

You touched on registration. At present, in terms of registration, payment of SDLT is not required, but under LBTT it will be required. Given that concerns about that are raised in the report, where are we with addressing it?

I am tremendously sorry, but I am not sure that I understand the question.

There is concern about the payment of registration for LBTT relative to SDLT. For example, Pinsent Masons said that the requirement was

“unnecessarily restrictive. We are not aware that the SDLT approach results in material loss of revenue ... and we would respectfully request that the approach be reconsidered.”

Has further consideration been give to when payment for registration is to be made? I am sorry for not being clearer about that.

I am aware of the issue. The requirement is that the keeper of the registers of Scotland is satisfied that there is a payment arrangement in place rather than that the cash has transferred.

We are certainly aware of the comments that were made to the committee by the Law Society of Scotland, as well as by Pinsent Masons, about the concept of “arrangements satisfactory for payment”. The Law Society was keen to enter into dialogue with Registers of Scotland and revenue Scotland about what that would mean in practice, and we have a stakeholder meeting this coming Friday at which the issue will be on the agenda. I would be happy to report to the committee after that meeting what the outcome is, although we do not anticipate any particular difficulties. Our approach has been to make a range of payment options available to support the concept of “arrangements satisfactory for payment”. That does not mean that the tax has to be paid at the time when the tax return is submitted; it just means that satisfactory arrangements have to be in place for the payment, which could mean an arrangement for subsequent payment of the tax.

11:45

I have one final question before I open up the session to other committee members. As far as the transitional arrangements are concerned, how are negotiations on costs going with HMRC?

They are still under way. I do not have a figure to give you. A lot of careful thought has been given to what the best solution is at HMRC’s end in relation to information technology and its normal systems development. We are in regular conversation with HMRC about all that. It is obviously a matter of great concern to us, on which we are still working closely with HMRC.

Do we have any idea of when those discussions will be concluded?

I do not think that I can give you a date, but there will be a timetable associated with HMRC having to undertake the work at its end to ensure that UK SDLT is disapplied in Scotland from April 2015, so we need to agree the cost in good time to allow HMRC to undertake the necessary work. We are alert to that. The issue is not yet pressing.

What do you mean by “good time”?

By that, I mean that sufficient time should be provided to ensure that HMRC can deliver what it needs to do.

How long is that? Do you think that we are talking about three months, six months or nine months?

HMRC has to tell me how long it takes to do the IT work at its end. I hope that we would know by the time that we next give the committee an update, because I imagine that HMRC would be wanting to get to work, but that is my speculation—HMRC has not given me a date.

That is of some concern, but I hope that we will hear more in the not-too-distant future.

I open up the session to colleagues. The first member to ask questions will be the deputy convener.

One of the points that I want to raise is about the timeline that you gave us. One of the headings under “Transition Arrangements” is “Agreement with HMRC”. If I am reading the timeline correctly, that started at some point in July and will continue until January or February, so we should be halfway through the process. Is that where we are? Are we halfway through?

I am not sure how we would measure how far through such a discussion we are in percentage terms. HMRC has made some proposals, which we have commented on, and it has gone away to do some further work. I will know that the process has been concluded when a figure has been reached that everyone is satisfied with, but we are not there yet.

The “Agreement with HMRC” was targeted to be reached by February. The timeline is divided into quarters, so it looks to me as if February is the target date.

Roughly, I think that agreement will be reached at around the time that I will be due to give the committee another update, which will be in six months’ time, I guess.

Okay.

The “Stakeholders and Comms” section of the timeline is split into two bits: “Develop initial comms and engagement”, which I think is due to be complete by now; and “Ongoing engagement with stakeholders”. I do not know whether there is a distinct line between the two. Has the initial stage been completed?

Yes, I would say so. You have already heard from John King about the stakeholder group that Registers of Scotland has set up. There is a group that is involved in consideration not only of the land and buildings transaction tax but of the landfill tax, which we call the devolved tax collaborative. It brings together a range of professional bodies, representatives of firms and groups with an interest. It is now well established—it has met three times—and we will continue to work with it right through to April 2015 and beyond on how those taxes should operate.

A series of seven roadshows on LBTT for the conveyancing profession has been held around the country with the Law Society of Scotland, so there has been initial, wide engagement with the conveyancing profession. I think that we can say that we have made an effort to get to the main stakeholders at least once and, in some cases, many times, and we will carry on doing that up to going live and beyond.

I have to confess that I struggled to get beneath some of the wording of your letter to the meaning. One bit that jumped out at me is in the final paragraph under “Respective Roles of RoS and RS”, on page 2. It says:

“It is important that Revenue Scotland and Registers of Scotland take the time to work through the process mapping in detail before reaching a final agreement on the split of responsibilities under live running if we are to ensure a fully joined-up service to taxpayers and their agents.”

I understand the reference to

“a fully joined-up service to taxpayers and their agents”,

but all the rest sounds like quite a long process. Does something need to happen or is that all just words?

I apologise for the wording. I realise that terms such as “process mapping” seem rather like jargon, but I was attempting to convey that we must work through what will happen at each stage when someone is due to pay the tax. There are many scenarios: the transaction could be residential or commercial; there could be questions or no questions; and there could be a dispute or no dispute.

We must work through what will happen at every step in the process, such as contact with members of staff at Registers of Scotland or revenue Scotland and having to work with an online system to make a payment or register a transaction. We must work through every little detailed bit of how the service would operate and unpick whether each bit would be best done by Registers of Scotland or revenue Scotland.

I was attempting to convey that we are coming at that by looking at what a taxpayer or their agent would have to do and who should do which bit with them, rather than by saying, “Registers of Scotland’s got the online system and revenue Scotland’s got disputes—away you go and develop those things completely independently.”

That helps me to understand a bit better what is being done.

I presume that you can say that the process mapping will be complete on a certain date.

Indeed.

At that stage, will you allocate the responsibilities?

Yes.

That is where we are heading.

That is where we are heading, but you will understand that the absolutely final split will occur relatively late in the process. Another big bill has to go through the Parliament, and it will set the framework, penalties, powers, duties and other aspects. We cannot be absolutely sure until the final legislation is in place, but we are already developing a pretty good understanding of who is likely to do what.

John King might want to add something.

I do not have a lot to add. The process is lengthy and useful. I emphasise that we are involving our external customers in it by asking what is practical and what they expect, because there will be an impact on them. A lot of people are involved in this fruitful exercise.

In practical terms, we have by and large completed the process mapping for key aspects of the tax implications from a residential transaction, and we are beginning the process of working our way through a commercial transaction. As Eleanor Emberson said, we will have other legislation to consider. That will have to feed into the work that we have done.

That is helpful.

Under the heading “Registers of Scotland progress”, on page 3 of the letter, there is a reference to

“a 5 point scoring matrix”

on which some things are assessed as green and some are assessed as green/amber. The letter says:

“The review team concluded that the project was progressing well and that ‘successful delivery appears probable’”.

That concerned me slightly, because I hoped that the whole thing would be slightly more than probable. I take the point that, of the seven issues that were to be looked at, some have been addressed. Will you expand on that?

The scoring uses the standard Scottish Government programme and project management centre of expertise format. As the letter explains, the range includes a green assessment, which we would ideally hope to get but did not expect at this stage in the project—that would have been unusual, given the project’s scale, the number of issues that must be considered and some of the uncertainties that remain, such as the revenue Scotland and tax powers bill. We were delighted that the assessment was green/amber.

Five of the review team’s seven recommendations have been put in place. Recommendations are scored as “Critical”, which means immediate consideration, “Essential” or “Recommended”. The two critical recommendations were essentially related to internal documentation within Registers of Scotland. There were suggestions for some improvements, and those recommendations have been implemented.

Three other recommendations have been implemented, and the two recommendations that remain outstanding are ones that the team that carried out the review accepted could not be tackled at this moment in time, although the team wanted to flag them up as areas of importance for the coming six months.

So those are not necessarily things that the team thought you should have done already; some of them are things that you should be doing in future.

Yes. The team concluded that the project was good, that it was running well and that it should deliver successfully. We have a number of recommendations that will, we hope, make it an even better project. We have implemented five of them, and the remaining two are recommendations that we will need to pursue with revenue Scotland. They relate to future system build, so they are not things that we could action now anyway.

You have said that you were “delighted” with an assessment of green/amber”. What was your expectation?

My expectation was green/amber. As the responsible owner for the project within Registers of Scotland, I was looking for the independent review to provide some form of assurance that my interpretation and take on the project was valid. It concluded that we are where we would expect to be with the project and that there are no major unidentified issues or particular risks for the project.

The review considered the structure and the governance supporting the project; it considered key areas such as our involvement with stakeholders; and it considered the IT delivery side. I was looking for anything that was amiss with those areas. The review team responded, “No, things are progressing well.”

You have mentioned IT, so let us come on to that. During stage 1 scrutiny of the Land and Buildings Transaction Tax (Scotland) Bill, I asked a number of questions about the IT budget for Registers of Scotland. According to the financial memorandum for that bill, it was £75,000. Somebody from Registers of Scotland—it might have been you—said that there was another category that was not described as IT, but it was explained to me that the bulk of that other category of about £250,000 was related to IT. That takes us up to about £325,000. Is that budget still realistic? Is it on track? Have there been any changes?

No—it is still a realistic budget. We monitor spend on a monthly basis, and we carry out a more thorough review every quarter. Over the past six months that review has considered the outcome of the LBTT legislation to see whether any of our key assumptions for IT build and development have changed to any significant extent. We are content that the budget is an accurate assessment of what we think the build costs will be.

I have a question about the chart that Mr Mason has referred to. The top line of the timeline relates to IT. At the far right is a bar for “Final testing”. Can you explain that? If one reads too much into the chart, it suggests that final testing will be continuing up until April 2015, having begun a good six months before that. Can you give us assurances that most of the final testing will be done well in advance of April 2015, although there might be some tinkering right at the end? Can you explain a little bit about how that IT testing will work?

That allows for a period of roughly four or five months from the point at which we will have taken delivery of the system. We will provide a degree of public access to the system, so that the public have some familiarisation with it before LBTT commences in April 2015. Because of the on-going work with stakeholders, we are not anticipating that there will be anything major when we take delivery of the system in autumn next year.

It is IT best practice to road test a system, and we have the benefit of time to road test the system. If there are minor issues that we can change quickly, we will do that. We do not anticipate uncovering anything major at the final testing stage, as we will have done a lot of formal in-house testing involving stakeholders and, in advance of that, there will have been a final familiarisation phase.

12:00

Okay—thank you.

On the left-hand side of that entry on the same line there is information on the “Data framework agreement”, which looks like it should have been finished between July and October—perhaps in August or September. Has that task been completed?

Yes. The work encapsulated a number of things, and it was undertaken jointly with revenue Scotland. It predominantly did the work, with ROS input. Certainly, that part of the project has been completed.

I have two other questions, one of which is on the gateway review, which John Mason asked a number of questions about.

I am struggling to understand how you tie up the graph, which is the bottom entry, with the narrative. I have probably just missed something, but the narrative states that the gateway review began in August, whereas the graph shows something described as “GR” beginning at the start of 2013, with the follow-up reviews happening about now. What is “GR”? Is it different from what happened in August?

Yes. It was a gateway review of the overarching programme rather than simply of the project. The gateway reviews for the project are not reflected on the graph.

Okay. The answer to my final question might be no, which would be fine. You said in the letter that, on the further policy work on sub-sale relief, there have been two stakeholder meetings, things are progressing and that advice will be provided to the cabinet secretary by the end of this year.

Are you in a position to elaborate on that work and say where you think it is headed? If not, is it because the information is not available or because you are not allowed to say at this stage? I am not trying to get you to say anything that you are not allowed to say, but I just wonder what more can be said about it.

All that I can really tell you is that there have now been three meetings and that another one is scheduled to happen shortly. I do not think that it would be appropriate to speculate. The group will report and the committee will be informed at the relevant time.

Fair enough. Thank you.

I am pretty sure that Gavin Brown was trying to get you to say something there.

I promise I was not. [Laughter.]

Gavin Brown has covered a lot of the ground that I hoped to cover, such as the IT systems and sub-sale relief. However, a lot of working groups have been formed and we know that revenue Scotland and Registers of Scotland will share responsibility in relation to the land and buildings transaction tax, and that the Scottish Environment Protection Agency will have a role to play on the landfill tax. A lot will be down to relationships in the transitional phase, in which HMRC will also be involved. Are the relationships good? Are people getting on with one another? Are they working well together?

Absolutely, from my point of view. The personal relationships work fine, but we have formal structures as well. We have the usual kind of programme management structures and there is a good programme board, with external representation on it; for instance, we have a local authority finance director, who brings expertise from having to set up and collect local taxes such as the council tax. We therefore have some good external challenge and a range of people involved. If we were to have any disputes or disagreements—mercifully, we have not had any so far—we would have arrangements to deal with them in a sensible way.

Do you have any observations on the dynamic between the organisations, Mr King?

I agree whole-heartedly with what Eleanor Emberson just said. The ROS team has a very effective working relationship with the revenue Scotland team. We have also had some positive dialogue with HMRC. On the joined-up front, everything is probably working better than one would have anticipated, given that we are dealing with a very large organisation south of the border and a new organisation here. It is all going very well indeed.

That is reassuring.

It has just occurred to me to ask you about where people will work going forward. Is there an opportunity for job dispersal in Scotland?

John King would be able to answer on the ROS teams for the land and buildings transaction tax, but there will be an amount of crossover because some people will not work entirely on tax but will also have responsibilities for other matters, which will constrain their location.

Revenue Scotland will be a relatively small body. We currently envisage it having around 30 staff at the point of going live, which will obviously be for not just the land and buildings transaction tax but the landfill tax. Our current plan is to place the body in Victoria Quay in Edinburgh, where there is spare capacity in a Government building, in the interest of trying to use the Government estate efficiently. The issue of dispersal could be looked at in the future, although I suggest that the issue would be where the body would be located rather than whether the team would be dispersed, because it is not very big.

I have a final question. Will revenue Scotland and Registers of Scotland have a role in forecasting future Scottish tax revenues?

We will have a role to provide data that will underpin forecasts, but we will not carry out the forecasting. Registers of Scotland has details of property transactions that I am sure will be highly relevant to any forecasts, and when revenue Scotland is up and running it will have data about levels of tax receipts and so on. All of that will be used to underpin forecasts, but we do not expect to be in charge of delivering forecasts.

That is very helpful.

I thank you both very much for answering our questions. Again, I am sorry for keeping you waiting for so long. I thank committee members for their work today in asking questions, and I look forward to seeing them in Arbroath on Sunday and Monday.

Meeting closed at 12:06.