HMRC has told software producers that a revised tax calculation to fix some of the online filing problems for 2016/17 returns may be issued to go live in October.
Worst year ever
HMRC has admitted that the ordering of allowances and deductions in the 2016/17 SA tax computation has caused the majority of problems when designing the tax software standards for that year. Its normal procedure would be to fix the software standards after the end of the SA tax return filing season, so the problems identified don’t reoccur for the next tax year. In the meantime, all the identified problems are excluded from the categories of tax returns which can be filed online.
Rob Ellis, CEO of BTCSoftware, can’t remember a year when there have been so many exclusions from filing SA tax returns online. For the 2016/17 tax returns 16 new examples have been added to the online filing exclusions list, which is now in version 4; there is a version 5 of this list under construction.
Volumes of paper
If a taxpayer’s circumstances fall within one of the exclusions, the tax return must be filed on paper to avoid an incorrect tax computation from being generated. If a paper tax return, for an online exclusions case, is filed after 31 October, it will qualify as a reasonable excuse for not filing online. However, to avoid a penalty being issued, the tax agent should submit this reasonable excuse form with the paper tax return.
Several AccountingWEB members commenting on my earlier article say they have seen a large number of clients who fall within the exclusions. For example, taxpayers with high levels of interest or dividend income and little or no earnings.
Timing of submissions
In the months of April to September, relatively low volumes of tax returns are submitted. HMRC’s records show that the majority of the returns are submitted from October onwards, and around half of all tax returns are submitted online in January (see graph for 2015/16 returns). Thus, to avoid a mountain of paper tax returns landing on HMRC, a fix for the online submission problems needs to be found sooner rather than later.
The professional bodies including the CIOT and ICAEW Tax Faculty have advised members to delay filing paper tax returns for a ‘few weeks until details of the possible solutions are available’.
In year fix
In view of the anticipated number of paper tax returns, HMRC is considering issuing an in-year fix for the tax return software standards. This has never been done before in the history of self-assessment. The “fix” will cover exclusions numbered 48 to 56, 58 and 59, which all relate to the ordering of allowances. There will be only one in-year fix issued, and HMRC are hoping that this adjustment to the standards for the tax calculation won’t generate more problems.
Ellis confirmed that BTCSoftware would need about six weeks to programme and test any new software standards provided by HMRC for the 2016/17 tax returns. In order to roll-out a new version of the tax return software in say October, HMRC would need to provide the revised tax computation to the software producers by mid-August.
Communication to taxpayers
Many tax agents and software producers are anxious that some tax returns which have already been submitted have generated incorrect tax computations, as the relevant exclusion wasn’t identified before the return was submitted. This could apply to either online and paper tax returns. HMRC should be able to pick-out the affected online submissions, but the paper tax returns won’t be identified until they are processed.
HMRC is considering how it can communicate this issue to the affected taxpayers, by way of an amended tax computation (SA 302) or a separate letter. In either case discussions will take place between HMRC and the professional bodies as to how taxpayers will be informed.
Please let us know how you are communicating the online filing exclusions to your clients. Are you having to charge an additional fee for the extra work involved?
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.