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Disallowed mortgage int on SA return - problems?

Anyone else getting odd results from SA software when dealing with residential finance costs?

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We use a software product which is normally excellent for producing our personal tax returns and have been noticing inconsistent results from it when processing returns for buy to let landlords with mortgage interest.

The problem seems to be mostly where there are brought forward or carried forward amounts for disallowed interest (finance costs).  One couple with almost identical income figures and a shared property did not get the basic rate tax deduction for 2018 because of the adjusted total income restriction but when we set up the 2019 returns for them and rolled forward the data one partner had the 2018 disallowed figure brought forward and the other didn't.  Another client received the full basic rate tax deduction for 2018 but for 2019 his total income is below the personal allowance so he receives no basic rate tax deduction.  His property business profits are less than the finance costs so the tax deduction would have been restricted anyway.  In these circumstances I would expect the whole of the 2019 disallowed interest to be carried forward to 2020 but the software is only carrying forward the full amount less the taxable profit so ignoring the fact that two restrictions applied.

I would be interested to hear whether other practitioners are having problems either with their interpretation of what can be carried forward to future years or in the treatment of residential finance costs by their software products.

I did raise a query with our software supplier but all they could say was that they had to follow the HMRC taxonomy.

 

Replies (18)

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By Accountant A
22nd Aug 2019 12:19

Moo wrote:

all they could say was that they had to follow the HMRC taxonomy.

HMRC stuffing animals now??

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Replying to Accountant A:
Stepurhan
By stepurhan
22nd Aug 2019 12:25

Taxonomy - a scheme of classification.

Though it must be said HMRC are good at stuffing things up and leaving taxpayers completely stuffed by their shenanigans.

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Replying to Accountant A:
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By Tax Dragon
22nd Aug 2019 12:37

I thought Google was your bezzie?

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Replying to Tax Dragon:
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By Accountant A
22nd Aug 2019 12:59

Tax Dragon wrote:

I thought Google was your bezzie?

I'm auditioning for Britain's Got Talent.

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By frankfx
22nd Aug 2019 12:33

Give us some real numbers to plug in to our software.

Are we talking £2 or £2000

Which package are you using?

Have you tried taxfiler demo site, to replicate the cases?

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Replying to frankfx:
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By Moo
27th Aug 2019 09:09

I'd rather not name the package as we generally have a good relationship with them.
I have run some of the client figures through Taxcalc which I use at home. Taxcalc gave answers which I think are correct and which conflict with some of those on the office package.
Thank you for the taxfiler suggestion, I will look at the demo site. Can you run 2 consecutive years to test the carry forward?

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By Jholm
22nd Aug 2019 12:56

You should be able to over-ride the b/f figure.

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Replying to Jholm:
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By Moo
27th Aug 2019 08:25

I agree we should be able to over-ride the b/f figures and will look to do that where appropriate but with 125 returns with buy to let income that is a significant extra workload in a 2 person department and not really what you expect when you take the 'roll forward' option when setting up the next year's return. The software on returns prepared so far has given inconsistent results on almost identical clients which is where I first picked it up.

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By ireallyshouldknowthisbut
22nd Aug 2019 13:02

I imagine its down to how you are using the software.

Are your staff just stuffing in figures, or are they thinking about the implications of claims for loss relief etc on future periods?

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Replying to ireallyshouldknowthisbut:
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By Moo
27th Aug 2019 09:34

Wow, I've not met the notion of 'stuffing figures' into a software package before, perhaps you could explain how to do that? we generally enter them into boxes on a screen using a computer keyboard.
If you read the original post carefully you will see that it is about the new rules on mortgage finance not about loss relief.
Admittedly there could be considerations going forward about setting salaries, taking pensions etc in order to exceed the personal allowance and receive the basic rate tax reduction on disallowed finance costs but first we need to have an accurate record of those disallowed finance costs and the basic rate tax reductions already received on them. This is something I would expect the tax return software to consistently record and at the moment we are getting results which are not consistent.

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RLI
By lionofludesch
22nd Aug 2019 13:11

"Another client received the full basic rate tax deduction for 2018 but for 2019 his total income is below the personal allowance so he receives no basic rate tax deduction. "

What's the problem here ? Instead of losing more personal allowance (which he would've done under the old rules), he gets to carry forward his relief for future years.

Surely he's better off.

For folk with income around the personal allowance, these new rules are much better.

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Replying to lionofludesch:
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By Moo
27th Aug 2019 08:52

Original query is about disallowed residential finance costs not about use of losses so I don't see the relevance of 'old rules'.
The issue with this client is that he gets no basic rate tax deduction for 2018/19 but the software shows only part of the disallowed finance costs being carried forward to 2019/20.
I am not taking issue with the rules, my concern is that I do not believe the software is applying them correctly.

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Replying to Moo:
RLI
By lionofludesch
27th Aug 2019 09:12

Without figures to illustrate, I can't really comment.

The point seems clear to me but I don't have your inside knowledge.

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By JCresswellTax
27th Aug 2019 09:15

Come on, name the software or none of us really care.

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By Jholm
27th Aug 2019 09:23

If you won't name the software, there's simply no point posting.... you may as well just get in touch with the provider. Unless their support is rubbish and if so, we can only assume it is in fact TaxCalc and you double-bluffed us.

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By Wanderer
27th Aug 2019 09:45

Done a couple, on BTC, where the unused amount wasn't rolled forward.
Takes about 5 seconds to manually enter it so really didn't see this as an issue.
But this was for 2017/2018 rolled into 2018/2019, OP is referring to 2018/2019 to 2019/2020, don't think I've experienced this yet.

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Replying to Wanderer:
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By Moo
27th Aug 2019 12:47

Thanks Wanderer, as you've named them I will confirm it is BTC where I am having problems. Unused amounts from 2017/18 failing to roll into 2018/19 and I agree that it is a moment's work to enter the figures manually - if you notice. We have found that in some cased they roll forward and in other cases they don't with no obvious explanation for the difference. My main reason for starting this thread was to alert other practitioners that they may need to check on every return with buy to let mortgages that the costs are being correctly carried forward.
For other BTC users the 2018/19 to 2019/20 c/f figure shows up on the Backing Schedule for the UK Property pages and is described as 45a Unused residential finance costs carried forward. I have an example where the disallowed finance costs (box 44) are £4365, the taxable rental profit (box 40) is £2146 and carry forward at April 2019 is the difference between the two £2219, so far so good. But there is no basic rate tax deduction given for 2018/19 because of the adjusted total income restriction so why isn't the whole £4365 showing up as available to carry forward?

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Replying to Moo:
RLI
By lionofludesch
27th Aug 2019 13:04

Moo wrote:

For other BTC users the 2018/19 to 2019/20 c/f figure shows up on the Backing Schedule for the UK Property pages and is described as 45a Unused residential finance costs carried forward. I have an example where the disallowed finance costs (box 44) are £4365, the taxable rental profit (box 40) is £2146 and carry forward at April 2019 is the difference between the two £2219, so far so good. But there is no basic rate tax deduction given for 2018/19 because of the adjusted total income restriction so why isn't the whole £4365 showing up as available to carry forward?

Why didn't you say this in the first place ?

Imho, you're right. Nothing's been used so the whole £4365 should be carried forward

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