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Accountants warned on tax software error

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7th Oct 2015
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Glenn Collingbourne advises accountants to check whether their tax return software is giving the right answer when large losses are claimed.

Collingbourne has discovered a problem with the restriction for sideways relief for losses (and certain interest deductions) which is capped at the greater of: £50,000 and 25% of the taxpayer’s adjusted total income for the tax year (ITA 2007, s 24A).

Where the losses are less than £50,000, there is nothing to worry about as those losses will be fully relieved if there is sufficient other income in the year. Any unused losses can be carried forward to set against future profits, or in the case of trading losses carried back, or “converted” to capital losses to set again current or future capital gains.  

Where losses are greater than £50,000, and the taxpayer’s income is £200,000 or more, its necessary to look at the other leg of the cap: 25% of the taxpayer’s adjusted total income. The key question is whether adjusted total income should be calculated before or after any other losses brought forward are deducted.

The tax law is clear: total income is defined in step 1 of ITA 2007, s 23 and any losses are deducted at step 2. Thus the taxpayer’s “adjusted total income” is calculated before deduction for other losses brought forward. However, the HMRC tax calculation notes for 2013/14 and 2014/15 started with total income being the total income net of brought forward losses. These notes in turn have been used as the basis of the tax calculations in some tax return software packages, possibly including the free HMRC software.  

The HMRC technical team has now corrected their tax calculation working sheet 1 for 2014/15. However, it will take some time to correct the tax return software.

Collingbourne advises that where taxpayers have significant losses arising in 2013/14, and also have brought forward losses into that year, the sideways relief of the current year losses may have been incorrected capped by the tax return software. The calculations should be checked by hand, and any amendments to the 2013/14 self-assessment before 31 January 2016. 

Any sideways loss relief claims already submitted for 2014/15 should be reviewed without delay.

AccountingWEB approached different software providers, none were willing to break ranks at this time and were busy consulting with HMRC on the issue. 

Glenn Collingbourne is a tax manager at Hazlewoods LLP, advising on private clients and professional practices.

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Replies (11)

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By carnmores
07th Oct 2015 13:29

be clear

are you saying that HMRC software is wrong or something else?

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Head of woman
By Rebecca Cave
07th Oct 2015 13:55

Can't be certain which software is wrong

It appears that the standard that HMRC used as the basis of the manual tax calculation was wrong, and has now been corrected. If software providers followed that standard (and some have), their own software may be wrong. It is impossible to say which software is wrong without testing it, unless the software provider admits their software is wrong, - which they are not doing.

 

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By carnmores
07th Oct 2015 14:05

Aha

what about HMRC online SA software , was that wrong .? quite a bit of conjecture here ;-)

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By cheekychappy
07th Oct 2015 19:40

Do people actually bang the data in the software without checking the computation that it produces?

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By petersaxton
07th Oct 2015 22:54

Sage Payroll and SMP

Sage Payroll didn't calculate SMP correctly. They wouldn't admit it and kept talking rubbish. They do that a lot. Their website for 2014-2015 payroll for updates to tax codes linked to the 2013-2014 tax code changes. Unless you checked you would change the code by the wrong figure. They also said that they would carry forward the claim for employment allowance from 2014-2015 to 2015-2016 but they didn't. You had to select the claim again.

Finally they they doubled my Accountants Club subscription even before adding the Auto Enrolment module. I've moved to Brightpay which is less than 10% of the cost of Sage Payroll for me.

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By carnmores
08th Oct 2015 14:21

@Peter

how are you getting on with Brightpay , AE OK?

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By petersaxton
08th Oct 2015 15:04

I haven't had to do any AE yet

but the usual stuff seems easy but there is always a leaning curve with anything new

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By carnmores
09th Oct 2015 14:25

Thank you Peter

I want to be totally online from 6th April 2016 so any updates will be welcome

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Replying to lionofludesch:
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By chatman
13th Oct 2015 17:42

Is Brightpay online?

carnmores wrote:

I want to be totally online from 6th April 2016 so any updates will be welcome

Is Brightpay online?

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Replying to Cheshire:
By petersaxton
13th Oct 2015 18:02

No

chatman wrote:

carnmores wrote:

I want to be totally online from 6th April 2016 so any updates will be welcome

Is Brightpay online?

No

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By u4jt51l3jphp
13th Oct 2015 15:25

RTI

I was checking my emails and came across an extension on a site that was given over to comments. Only one comment gave faint praise. Whereas there were 168 negative  complaints.

I have a complaint of my own which is why is it so awkward to make an amendment to the submission of a previous year's end of year results? No doubt there are some sole practitioners

with small practices and a small bureau for salaries who cope admirably but I have little doubt

that they are in the minority. Is this not an area that is crying out for simplification. In those cases

where I have requested help from the help line, only about 10% of advisors are au fait with the procedure whereas the rest are endowed with less knowledge than myself. Of course you have to wait mostly 20-30 minutes to get through. I am sure that is the biggest beef of all practitioners.. 

Jack.

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