As property lawyers and conveyancers scrambled to file Stamp Duty Land Tax (SDLT) returns before the end of the Stamp Duty holiday, many calculated the amount owed incorrectly. This has caused professional indemnity (PI) insurance premiums to rise by up to 30%.
SDLT Compass is a new tool which aims to make calculating SDLT easier and legally safer.
When property changes hands, a SDLT return must be filed unless the transaction is exempt or falls into one of 49 different relief categories. If a property lawyer gets this process wrong, they open themselves up to liability and increased PI insurance premiums.
Managing Director Chris Ward explains how Compass takes legal responsibility for the calculations it provides.
“One of the big benefits of Compass is that it shifts the PI risk away from the property lawyer or conveyancer, so personal indemnity insurance premiums will be easier to get,” Ward tells us. “Also, there are a lot of claims going on right now against law firms for getting SDLT wrong.”
Compass began as an in-house tool for the chartered tax advisor Cornerstone. When the firm saw a need and demand on the open market, it developed Compass from that tool and fully launched on May 1st 2021.
“We’ve had a great response. We’ve signed up our first ten clients, and we’ve had 50 free trials over the last three weeks,” Ward tells us.
There is no subscription or license fee for Compass. Instead, there is a £50 fee per SDLT calculation. There is also a 14-day free trial to get used to the software.
Compass users answer a questionnaire which takes most people with practice about five minutes to complete. If the program finds any potential issues, it is flagged up for manual review.
“About 90% of property completions in this country are standard. If it’s what we call a complex or high-risk case it gets referred to a member of our tax analyst team who will give specialist advice on an agreed-fee basis,” Ward said. “That can be anything from a couple of hours’ work up to a lot more.”
Compass is currently the only SDLT calculator which takes PI responsibility. It also considers factors which other calculators do not. “Most property lawyers go to the HMRC website and use the calculator there. The problem is that the HMRC calculator doesn’t take into account any of the 49 different reliefs, and last year they admitted that it is only an estimator, not a calculator.”
Compass does take reliefs into account and is constantly updated as new legislation comes through. “We’ve kicked the tires a lot and tested it, throwing any new piece of legislation at it,” Ward continues. “For example, on the first of April there was a 2% SDLT surcharge for non-resident purchases in the UK. We had that in Compass within an hour.”
The Stamp Duty holiday was designed to mitigate the effects of the pandemic on both property buyers and the market, raising the minimum price at which it has to be paid from £125,000 to £500,000. The tax break will begin tapering off from June 30th, and it ends completely on October 1st.
Ward explains that the launch of Compass was not timed with the end of the SDLT holiday, but that it has not proved to be an issue. “There’s a big shift towards protecting law firms against SDLT wrong advice, so I think the timing is good in that respect. We’re pleased with the way it’s been taken up.”
There are normally around 100,000 property completions a month. Because of the Stamp Duty holiday, that number has risen to around 120,000. It has been estimated that one in five SDLT payments are incorrect.
“I think if you take into account the time and money involved in defending claims that are happening more and more against lawyers who get SDLT wrong, protecting them, reducing their risk for PI and making them compliant…” Ward says. “Once Compass is embedded in an organisation it’s going to save a lot of money and a lot of time.”
SDLT Compass hopes to net 10% of the UK conveyancing market and perform 10,000 audits a month in two years’ time.
Photo credit: Christian Vasile on Unsplash