RSM’s senior tax partner George Bull has joined the chorus demanding independent oversight of HMRC software standards in the wake of an error that led to thousands of pounds in overpaid tax.
AccountingWEB has previously reported on a loss relief error that crept under the radar of software houses and HMRC. Accountant Glenn Collingbourne discovered the 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).
The genesis of the issue lay with the standard that HMRC used as the foundation of the manual tax calculation being incorrect (which, it should be noted, has now been corrected). Software providers followed that standard leading to an error where large losses were claimed.
When a return is filed online, HMRC takes the tax figure calculated by commercial software and compares it to the one calculated by their software. If they do not match, the submission is rejected and if the standard set by HMRC is incorrect, all tax returns software will be wrong in that respect.
Writing in RSM's weekly tax brief, Bull said in 2013/14 commercial software correctly performed the calculations correctly. But, “HMRC’s computers refused to accept the returns. We were advised that the calculations were wrong and had to edit the returns to show the higher figure before HMRC would accept the returns.
“This meant that a number of clients had overpaid 2013/14 tax because they had followed HMRC’s rules. We are now claiming back thousands of pounds of overpaid tax on behalf of those clients.”
HMRC is at present both the tax collector and controller of software standards. And worryingly, the error could be emblematic of errors that have crept into HMRC’s software undetected; errors that aren’t aligned with tax law. “Sadly, but perhaps not surprisingly, this is not an isolated example of the problem. [The] recent errors in HMRC’s income tax self-assessment software meant that a number of clients overpaid tax which we subsequently had to reclaim from HMRC on their behalf,” wrote Bull.
The worry now is that as tax migrates to the digital realm, there is no central, independent oversight body to check the logic in online forms produced by all government departments to ensure that it adheres to tax law.
Or, as AccountingWEB’s tax policy editor Rebecca Cave previously observed, “All this talk of digital accounts, quarterly reporting, and paying tax in real time, assumes that the software behind the tax calculations is correct and in line with tax law. Who checks that this is the case?”
Independent, structured oversight, said Bull, will ensure “[a]ll citizens, and the commercial software companies who are so important in helping citizens discharge their digital duties to the State, can then have confidence that they are working on firm foundations”.