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HMRC software fault?

HMRC software fault?

Is it just me or does HMRC's own software calculate tax on interest incorrectly?

Interest is included on the return net, which is rounded (down) to the nearest pound. So if interest of £2.80 is earned gross, it gets added to the return as £2.00.

Then tax deducted at source is calculated by grossing up, so £2.00 divided by 80% is £2.50, meaning £0.50 tax has been deducted at source.

The net figure is then taxed at 10, 20, 40 or 50% respectively! In this case 10% so £0.20, whereas I believe it should be taxed on the gross providing a figure of £0.25.

So instead of being owed £0.25, my client is owed £0.30. 

I hope you didn't ask "so what?", so what if my client earned £20,000.80 instead of £2.80? They would have an effective tax rate of 16% and get a £1,000 refund.

I presume commercial software works better but I can't wait for the court case where HMRC blame the tax payer for under-declaring tax by using HMRC's own software. I would be interested in a lawyers interpretation of whether you can sue HMRC for providing dodgy software.

All thanks and praise go to the client who provides you with interest figures on the 30 January.

Welcome to the future, it's broken.

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By ACDWebb
31st Jan 2012 23:18

Are you sure?

Surely it's still only the pence getting rounded off, so in your example instead of £25001 he gets assessed on £25000 with a credit for tax of £5000 instead of £5000.20

Looking at the HMRC comp for developers, which they must also use, in collecting Savings income re banks at Stage 2 it notes

INC1 x savings_gross : (£down) : Box INC1 x 100/80 ie gross up the integer net from the return and knock off any pence resulting from the grossing (25,000)

£down means "trunate pence to leave integer £'s"

So it certainly appears to be working out the liability on the gross interest at best £1 less than might be expected from normal rounding adjustments

For completeness in collecting tax credits the HMRC standard comp for developers says at Stage 11:

INC1 x NS_gross x BR_rate : pup : INC1 x 100/80 x 20% ie gross up the net and take 20% of that (£5,000)

pup means multiply by 100, add .99, truncate decimals, then divide by 100

Again the credit is 20% of the gross - though the operation of £down in arriving at income and pup in getting to the tax credit could make the tax credit fractionally more than 20% but the difference should only ever be the odd £1 and always in the taxpayers favour

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