Tax return software glitches multiply

software glitches
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Rebecca Cave
Tax Writer
Taxwriter Ltd
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The number of exclusions from online filing for 2016/17 SA tax returns appears to be growing. The only solution for the affected taxpayers is to file a paper tax return, but are they adequately warned of the risk of filing online?  

Emerging problems

The first major problems with the tax return software for 2016/17 were made public in late March 2017. I reported that two directors of Absolute Software (Tim Good and Giles Mooney) discovered the algorithms they had freely provided to HMRC to solve two computation issues hadn’t been fully incorporated into the official standards for tax return software.

This meant that tax software which complies with those standards will, in certain defined circumstances, produce an incorrect tax computation for 2016/17. If the tax return software doesn’t follow the HMRC set standards, the tax return and tax computation it produces will be rejected by HMRC’s system.

In those situations, the taxpayer has no choice but to file a paper Self Assessment (SA) tax return. The filing date for the paper return is effectively extended to 31 January as the taxpayer has a reasonable excuse for not filing online. 

When HMRC receives the hard copy tax return it will manually process the figures and calculate the tax due using software which does take account of all the faults which appear on the exclusions list (see below). The result should be that a taxpayer who files a paper return will see the correct amount of tax due appear on their SA statement.

Perennial problems

This is not a new situation. Every year there are a number of circumstances which HMRC judge to be so rare that it is not worth spending the development time to include them within the tax software standards.

For example, a taxpayer who has, say, 50 different self-employed trades or employments to report in the year will not be accommodated in tax return software, so will have to file a paper SA tax return.

Exclusions list

The software producers need to know which situations to explicitly excluded from online filing using their tax return software, so HMRC list all those exclusions on this document: Self Assessment individual exclusions for online filing.

HMRC has issued at least three versions of this list for 2016/17 SA returns, but you won’t find the most recent document (dated 11 April 2017) on gov.uk. The above link takes you to the website of one of those software producers.

For 2016/17 there are 28 live exclusions for online filing, 10 of which are new for 2016/17, and one was new in 2015/16 and has been carried over. It is these new entries (numbered 47 to 57 on the list) which are most concerning. HMRC has said these errors will be fixed for the 2017/18 SA tax returns but not before that.

Is HMRC software correct?

All approved tax return filing software should (if it has incorporated the full exclusions list), block online filing of SA tax returns that fall within one of the situations on that list.

However, from comments posted in various forums, it is apparent that the free HMRC software for filing SA tax returns has not taken account of all the exclusions.

For example, an AccountingWEB member commenting on the article ‘Errors in tax return software’, said he submitted his own tax return using HMRC’s free software and found he was overcharged £1,375 in tax, as the savings allowance and dividend allowance had not been correctly offset.

On another tax forum, a taxpayer asked why his foreign dividend tax credit was not calculated correctly when using the HMRC software. This appears to be an example of exclusion number 57 on the exclusions list.

Whose fault?

It is clear that the problem lies with the HMRC software standards, which do not reflect all the requirements of tax law when setting the parameters for the income tax calculation.

I have some ideas about how these problems could be avoided in the future, which I will explore in a future article. Do let me know your views by commenting below.

Replies

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19th Jun 2017 12:34

How can these problems be avoided in future?

Isn't there a saying that training is expensive but not training is more so? My guess is that insufficient resources have been made available to HMRC to enable it to prepare properly for the 2016/17 filing season. The way to avoid these problems happening in future is for HMRC to be properly resourced.

The sad consequence of the lack of investment for 2016/17 is that we are all now paying the price. It costs clients, ourselves and HMRC far more to produce and process a paper return (wet signature, postage, stationery, re-keying...).

False economy Mr Osborne.

Thanks (1)
19th Jun 2017 14:48

This issue also managed to make its way to the Sunday Times yesterday: https://www.thetimes.co.uk/article/online-tax-return-computer-says-no-69...

Albeit with a slightly sillier headline...

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By Akrigg
19th Jun 2017 16:20

Nothing of any great substance to add, so will stick to grumbling.

I'd naively assumed that non-submittable returns would still be a rarity, but we're already seeing quite a few of them.

Maybe as a tax agent I shouldn't complain - can make us look quite good when you explain to Mr & Mrs OMB that a bit of planning with salary, divs and interest on director loans can give some nice results.

Its the people with pension income along with interest & divs and maybe a bit of trust income & foreign savings who are trying to work out their own tax that I feel sorry for.

To avoid these problems in the future? Probably best not to add in massive complication to the tax computations of relatively low income people. If you do insist on doing it, then have some consultation in advance to ensure that all of the consequences of the complications are understood and can be planned for.

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By mabzden
19th Jun 2017 17:01

Could the flooding in Shipley have been an issue? The office was closed for year at a time when HMRC was working on the 2015/16 returns.

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19th Jun 2017 17:09

Just stop making tax more complicated than it already is. I've been in accountancy for 35 years and I don't think I've ever seen personal tax so complicated with the various claw backs (child benefit & personal allowance) and the new personal savings allowance and zero rate bands for interest and dividends. They've made tax far too complicated than it needed to be. May I ask just what is the point of the office of tax simplification - things have got much worse ever since it was created.

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20th Jun 2017 08:44

Ken is right - we allow politicians to interfere with our tax system and expect HMRC to deal with the computational problems this creates - if a politician comes up with an idea such as the clawback of child benefit (a purely politically motivated amendment to the tax system) it seems that no-one is prepared to stand-up for the tax system and object because it over-complicates calculation. The Office of Tax Simplification seems to be ignoring the elephant in the room - get rid of the purely politically inspired alterations and the system becomes simpler, easier to understand for taxpayers, and more likely to get the right answer.

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to Paulsoper
20th Jun 2017 09:32

The OTS was dead and buried when they suggested IR35 was unworkable.

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22nd Jun 2017 12:28

Who feels confident doing a manual calculation nowadays on a complex case?

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to North East Accountant
22nd Jun 2017 12:43

I've never stopped doing manual calculations. Not only does it keep the mind sharp (well perhaps stops it from being fuzzy) but there is always a double check on yourself. I think a lot of people still do, this is why they find problems with software.

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By ShayaG
22nd Jun 2017 16:52

This was a fundamental change into the taxation of income, undertaken with no consultation, no preparation, and unveiled on budget day. It's a miracle nothing more important than a few hundred quid on a computation went snap.

The budget has to change from its current form - a heavily politicised confrontation - to a more staid, corporate affair. We have to stop inventing new levers to obfuscate tax increases. If taxes need to go up, raise them, and explain this to the nation.

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