HMRC announces more online tax return exclusions

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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.  

Flexible allowances

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.”

CIOT advice

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.

Replies

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By Eric T
05th Jul 2017 09:57

Can't wait when online filing is compulsory.

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05th Jul 2017 10:01

I can't wait until returns are no longer required.

How will unrepresented taxpayers know their tax calculations are correct, or even suspect that they might be wrong?

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By SXGuy
to mikanary
05th Jul 2017 17:50

mikanary wrote:

I can't wait until returns are no longer required.

How will unrepresented taxpayers know their tax calculations are correct, or even suspect that they might be wrong?


That's the point isn't it? Push us out the way then the tax payer is free to over declare expenses or under declare them both benefiting hmrc.
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By KenKLM
05th Jul 2017 10:45

How can software companies get their calculations correct and HMRC miserably fail ? Again . MTD is going to be a mess .

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By CptCave
05th Jul 2017 10:50

"HMRC is working hard to ensure that no tax is incorrectly assessed for a very small number of self-assessment customers"

That's funny, the majority of the returns I have completed thus far, meet the exception criteria due to the allowances.

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to CptCave
07th Jul 2017 12:15

Likewise, I would say that 80% of the returns I have done so far have had to be filed on paper.

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By Moo
05th Jul 2017 11:04

I would be interested to hear how HMRC are planning to process all the returns which could be filed on paper. Given the staff cuts over the last few years will they have the manpower to deal with the mass of data entry required?
My recollection of filing paper returns in the past is that there was a small but significant error rate in processing at the HMRC end with numbers incorrectly entered or in the wrong boxes giving rise to wrong tax bills.
What is particularly disturbing is that fresh examples of wrong calculations keep being discovered, at what point can we be confident that all possible combinations have been identified and incorporated into 3rd party software? And will that mean that returns already filed online will then need the calculations re-run to check that the tax is correct? Absolute shambles.

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05th Jul 2017 11:19

Dear Editor
Could you print a list of exclusions please.

Krishan Bhugtiar

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to krishanbhugtiar
05th Jul 2017 12:14

Krishan, just click with the mouse where it says exclusion4 in the article

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to krishanbhugtiar
05th Jul 2017 12:15
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05th Jul 2017 11:26

There are not only problems with 2016/2017! I have a client who has been asked to pay more tax than is due for 2015/2016 and have been told by HMRC that "there is a known issue with calculations that we are in the process of rectifying". Needless to say, they do not seem to be able to stop the Collector pursuing the extra tax, including increased payments on account, in the meantime.

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05th Jul 2017 11:38

Self assessment is supposed to mean that the taxpayer assesses his or her taxable income and calculates the tax due. Why can't the tax return be completed and submitted online and the online calculation be overridden and the taxpayer puts in the tax he or she believes to be due?

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By raju m
to tonyaustin
05th Jul 2017 13:59

That is just too easy.

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05th Jul 2017 11:56

One can always depend on HMRC to make life awkward . . . like this HMRC example of a Change Log . . .

When the problem is 'fixed' they Delete it [ie. replace all relevant text with the word 'REMOVED', instead of writing 'FIXED' in the rightmost column like what normal folks expect]: so the upshot is you have absolutely no idea what has been 'fixed' - or if you have found a 'new' issue or what.

I suppose its all meant to be a secret - outside HMRC we have the so-called 'Black Economy' - inside HMRC the functional equivalent is the 'Fines regime', allowing HMRC to take extra monies without anybody really understanding why [due to the cost of finding out] - and this is a great example of how it is 'facilitated'.

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05th Jul 2017 12:06

Like CptCave I seem to have a very large percentage of "paper required" returns. This leads me to doubt the HMRC statement that "a very small number of self-assessment customers, who have a very unusual combination of income types" is true. Honesty costs nothing. Deceit is very dangerous.

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05th Jul 2017 12:39

It’s an embarrassment that the UK national taxing authority can’t accept tax returns that calculate the correct amount of tax. I’ve already had to file more tax returns on paper this year than I’ve had to do for the last 10 year. I’ve been (attempting to) 100% efiling since 1998 and suspect I’ll be submitting more on paper this year than the last 19 put together!

There were 28 exclusion cases for 2014-15, 47 case for 2015-16 and currently 62 for 2016-17. That’s doubled over 2 years. HMRC want “digital by default” but their actions are forcing us to submit paper returns. So much for HMRC’s “agile technology”: the only thing it is agile at is breaking it.

I was already aware that the new 5 year averaging for farmers doesn’t work if there’s both a decrease in profits for 2016-17 and an overpayment for previous years. But HMRC can’t hide behind the excuse of new legislation because for 2016-17 you can’t file CGT if there are nil loss/nil gain eg on transfer between spouses/civil partners, hold over relief, roll over relief.

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to kevinringer
05th Jul 2017 17:07

Interestingly last week I have filed as 2017 trust tax return with a gain of £155,000 less holdover relief £155,000 chargeable gain £nil and it was accepted by the gov gateway. However as I discovered with one return last year (when I came to claim a reduction in a payment on account) acceptance by the gateway does not necessarily mean that the return information has been processed! In view of this article I will check next week to see if the return has processed with a nil gain.

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to michaelblake
06th Jul 2017 08:47

Michael, when you do check please tell us whether it was processed or not. Also, what software are you using?

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to kevinringer
06th Jul 2017 08:49

Will do. It is PTP Software

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to kevinringer
18th Jul 2017 14:30

Kevin - An update on 18 July. My agent record shows that the return was received by HMRC on 4 July but as of yesterday the online record was still only showing the payment on account due on 31 July and nothing for the balancing payment due on 31 January 2018. The online helpdesk could not see why the calculation had not been amended following filing and have escalated the issue to the second tier for someone to investigate.

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to michaelblake
18th Jul 2017 14:44

Thanks for the update Michael. I have had one case that was successfully filed through PTP but which was never processed by HMRC, but the circumstances were different: it was an amendment to 2015-16 and not an exclusion case.

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05th Jul 2017 14:14

Gather version 4.x is NOT the latest and version 5.x is with the software houses...........

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05th Jul 2017 16:07

I'll be surprised if a "fixed" version of the HMRC SA software is announced, let alone in use, in the next couple of months, let alone weeks - especially if they intend to optimise all combinations of the five classes of taxable income!

This farce is not just one of incompetent software but, apparently, of test data written to pass faulty software rather than truly test it.

As for "very unusual combination of income types", that's nonsense. It is a fact that this year, fundamental errors over common circumstances - for example, those UNUSUAL allowances SRA and PSA - make this incompetence so serious a dereliction of duty.

As for HMRC's attitude to its customers over this, I suggested some time ago to HMRC that they permit online assessments to be submitted with a rider that this data will need manual processing. I can summarise the response as "get lost".

Totally out of their depth is putting it politely.

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By SXGuy
05th Jul 2017 17:54

So if these arnt fixed by 31st October do we trust that no one will be getting a late filing penalty should a paper return be sent? Lol

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By lme
05th Jul 2017 22:25

OK worried now that 2 people in this short thread have said the majority of their returns are the exclusions. Thanks, all and thanks Rebecca, we will be extra, extra careful now

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06th Jul 2017 11:18

When sending a excluded tax return by post to HMRC I'm sending the following covering letter:

"Due to HM Revenue & Customs’ IT incompetence the attached 2017 Tax Return is exclusion case 61. I am astonished that HM Revenue & Customs introduces new legislation which it is incapable of dealing with: my third party software which cost £168 can handle it but HM Revenue & Customs’ multi-million pound IT cannot. HM Revenue & Customs wants “digital by default” but won’t accept my client’s correctly calculated and forces me to file on paper. It’s an embarrassment and disgrace that the UK tax authority can’t accept correctly calculated digital Tax Returns. Please process without delay."

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By SimonP
03rd Aug 2017 08:25

Excellent! I followed the above link to view the Version 4 exclusions only to be told by GOV.UK that . . .

. . . "We're experiencing technical difficulties. Please try again later."

Seriously? After all these years I really shouldn't be surprised by anything that HMRC do.

Isn't it about time that the government started employing some of the naughty hackers we keep reading about? On the evidence, they seem to be far more adept at programming than whomever HMRC is wasting our tax money on.

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03rd Aug 2017 08:39

It is currently taking HMRC more than 3 months to process a paper return. That is now when the volume of returns is low. How long are HMRC going to take in January? This is not acceptable. When HMRC writes to a taxpayer HMRC does not give the taxpayer 3+ months to respond: HMRC rarely give more than 30 days. HMRC should operate to the same deadline and capture these paper returns within 30 days. Afterall, this is HMRC's problem - our 3rd party software does not have these problems.

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