The complexity introduced into the tax system by new allowances for dividends, savings and the moveable personal allowance have proved to be too much for HMRC’s SA tax return software standards.
As I previously reported, tax return software glitches have multiplied for 2016/17 tax returns. These glitches mostly reflect the difficulty in predicting the wide variety of ways in which the personal allowance, dividend allowance and savings allowance interact from 6 April 2016. Before that date, it was not widely appreciated that the personal allowance could be set against any class of income and even split between classes of income as it suits the taxpayer.
When HMRC designed its standards for SA tax return software for 2016/17 it did not create sufficient examples to illustrate every possible combination of classes of income and allowances. There are many real-life situations which are now coming to HMRC’s attention as being outside their standard set of examples.
As all commercial software must be designed in order to fit the HMRC examples, even if the software company had predicted a certain combination of allowances and income, it could not program that situation into its own software as the HMRC gateway would reject the tax calculation. The only solution is for the software to tell the user to file on paper.
Restricted online filing
The most recent list of exclusions for online filing, version 4 (dated 19 June 2017), now includes 33 live exclusions for online filing. My earlier article was based on version 3 of the exclusions list which was dated 11 April 2017.
In the latest exclusions list, HMRC reveals that there are 16 new or updated situations in which tax returns should not be filed online for 2016/17, and those tax returns should instead be submitted in paper form.
It is not clear whether HMRC’s own online SA filing system has incorporated all of the online filing exclusions, or whether the free HMRC software is accepting SA tax returns online which will generate incorrect tax computations.
When will it be fixed?
The CIOT has been pushing HMRC for clarification as to when the online filing issues will be fixed. They have received the following statement from HMRC:
“HMRC is working hard to ensure that no tax is incorrectly assessed for a very small number of self-assessment customers, who have a very unusual combination of income types. HMRC is committed to helping customers file online for 2016/17 and is discussing how best to achieve this with agent representatives and software providers. Further information will be provided, as soon as it becomes available.”
The CIOT has advised its members to wait for further updates from HMRC before resorting to filing paper returns for taxpayers who fall within the exclusion cases. The CIOT is hopeful that an electronic fix may be announced in the next couple of weeks.
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.