UK and International Tax news

New Enhanced SDRT Assessment Service

Thursday 28th November 2013

Most stamp duty reserve tax (SDRT) is currently assessed through CREST, the electronic settlement and registration system, operated by Euroclear UK & Ireland Limited (EUI).

There has been an increasing trend recently for gross transactions in securities to be aggregated or netted off outside of CREST before settlement, which means that EUI cannot assess the gross transactions as the legislation requires.

HMRC, in consultation with key market participants and stakeholders, has recently confirmed that it has asked EUI to develop and deliver a new enhanced SDRT assessment service.  The aim of the new enhanced SDRT assessment service is to help rebalance the established market practice of gross transactions being sent for reporting and assessment for SDRT at a centralised point. It is planned that the service will go live in June 2014.

The new service will affect financial businesses that are accountable for SDRT, for example market participants such as brokers who undertake transactions which fall within the scope of SDRT and whose transactions are aggregated or netted off before settlement in CREST.

The new service will allow these businesses to report their gross transactions separately to a central point for SDRT assessment only, whilst ensuring that those who wish to can still settle transactions on an aggregated or net basis in CREST.

Businesses that settle their transactions in CREST on a normal gross basis, or use the netting functionality within CREST will not be affected, as transactions will be assessed using the already established SDRT assessment process.

This new enhanced assessment service will be operated separately, but will closely follow the established SDRT market practice in CREST.

Where an aggregated or net transaction is input to CREST as a delivery (DEL) settlement instruction, the transaction will need to be flagged with a new ‘net’ stamp flag. Where a ‘net’ stamp flag is input, the transaction will settle under normal CREST settlement discipline, but will not be assessed for SDRT.

The underlying gross transactions will then need to be reported separately to the new SDRT assessment service. It is anticipated that compatible messaging formats will be used to send gross transactions over secure internet.

HMRC along with EUI have said that they are committed to delivering a service at a low cost that allows market participants to benefit from the overall savings from netting, but still continue to maintain the ability to full fill their SDRT obligations utilising the automated SDRT assessment functionality provided in CREST.

Although the main responsibility lies with the accountable person, the use of a third party to report trades will be permitted.

HMRC has identified that a large proportion of netting currently occurring outside of CREST is through Central Counterparty (CCP) netting models which have been the focus of the initial consultation process.

HMRC recognises that there may be other post-trade processing and settlement services within the market which this new service may have an impact on.

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