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HMRC recalculations: Disaster recovery exercise

22nd Nov 2018
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HMRC has started to recalculate the tax due for taxpayers who submitted their 2016/17 tax returns online before all the exclusions for online filing were put in place.

In return of the undead tax computations, Rebecca Cave explained how HMRC will be repairing the 2016/17 income tax calculations for an estimated 30,000 taxpayers. On 13 November, software developers received an email from HMRC’s Software Developers Support Team giving a little bit more detail.

The email tells us:

  • The “recovery exercise” will begin on 19 November 2018.
  • A total of 22 different exclusions that affected the calculations have been identified.
  • Affected taxpayers should receive a new SA302 by the end of November.
  • Copies will not be sent to agents.
  • Penalties will not be applied and interest on underpayments will not be charged provided the additional tax is paid within 28 days of the date of the notice (in many cases the taxpayer will have been overcharged and so entitled to a repayment).
  • Appeals against the amended SA302 (if appropriate) must be made within 30 days of the date of the notice.

The exclusion cases to be repaired in this recovery exercise have been listed as:

1) Non-UK resident – exclusions 57, 67 and 73:

  • 57 – Relating to the 7.5% notional tax paid on UK Dividend income.
  • 67 – Relating to the tax due on trust income.
  • 73 – Relating to the loss claimed.

2) Beneficial ordering – exclusions 68, 69, 70, 72, 76, 78, 79, 82, 83 and 85:

  • Relating to how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer.

3) Dividend tax credit, trust and Lloyds – exclusions 62 and 75:

  • Relating to the tax calculation to give the relief due on apportioned income.

4) Marriage allowance transfer (MAT) – exclusions 66 and 66A.

5) Capital gains not calculating – exclusions 64 and 77.

6) Chargeable event gains – exclusions 74 and 81:

  • Relating to the top-slicing relief that is due.

7) Pension lump sum – exclusion 87:

  • Relating to the tax due on your state pension lump sum.

The exclusions that will generate the greatest number of recovery cases are those listed above under beneficial ordering.

Chargeable events

Watch out for chargeable event gains. Exclusion 81 was agreed following my representations to HMRC (and my article last year in Taxation Magazine). But only very recently have HMRC (again at my behest) agreed to remove exclusion 80 and confirm that the HMRC calculation was after all correct.

You may need to check whether your tax return software incorrectly calculated tax because of exclusion 80 and as a result, the client overpaid for 2016/17.

Correct now?

Will the repaired calculations be correct? I hope so – but if you want to check them for your client then run the figures through my free 2016-17 tax checker. Please let me know if you find any differences!

Replies (13)

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By ireallyshouldknowthisbut
22nd Nov 2018 18:25

I saw this on the ICAEW news feed and was staggered to note agents will not be copied in.

This is such an arcane and complex situation, the ordinary taxpayer cannot be expected to know that HMRC's software was wrong, and has been corrected.

There is a very real risk here that clients will think that HMRC has 'found' an error agents have made.

Thanks (7)
Replying to ireallyshouldknowthisbut:
By johnjenkins
26th Nov 2018 09:58

I just hope clients don't leave it too long before they get in touch. I know some are wintering somewhere warm.

Thanks (4)
By djtax
26th Nov 2018 10:02

HMRC timing here sucks. Revised SA302s going out now, no copies to agents and a requirement to pay any extra tax within 28 days - doesn't half (or more) of the UK population go on holiday around the end of December most years...What planet do HMRC live in?

Thanks (4)
Replying to djtax:
By dgilmour51
26th Nov 2018 12:20

djtax wrote:

...What planet do HMRC live in?

... the one where Civil Servants collude around the good times to bury bad news.

The whole short notice and purposefully excluding agents is yet another stark illustration of HMRC's calculated duplicitous mendacity - their capacity to affront never ceased to astound.

Thanks (5)
By Tom 7000
26th Nov 2018 11:12

Well shouldn't it be overpayments refunded + 10% and a letter of apology , under payments written off. If you make the tax system so complicated that accountants tax inspectors and programmers cant work with it and there is only Tim in the whole country who can do this ....

Thanks (5)
By SteveHa
26th Nov 2018 14:01

Appeals against the amended SA302 (if appropriate) must be made within 30 days of the date of the notice.

Rubbish. No appeal is required, merely an objection. S9ZB(4) TMA 1970 - “A correction under this section is of no effect if the person whose return it is gives notice rejecting the correction”.

Thanks (3)
Replying to SteveHa:
By kevinringer
21st Dec 2018 09:42 says 'In practice the 30 day rejection rule will only be applied where a return is filed 11 months after the filing date or later.'

Thanks (0)
By exceljockey
28th Nov 2018 07:56

Is this only for SA returns filed online using HMRCs software. If you used third party software to submit, will your clients still be affected?

Thanks (0)
Replying to exceljockey:
Tim Good profile image
By Tim Good
28th Nov 2018 16:48

Almost all third party software uses the HMRC calculator to do the tax calculation (so that the tax figures agree and the return is not rejected). If the third party software did not trap an exclusion case and allowed online filing then such a return should be picked up by this recovery exercise.

Thanks (3)
By kevinringer
16th Dec 2018 10:34

I've had a couple of SA302s. Both were for 2016-17 TSR exclusion cases that could not be filed until HMRC installed their mid-year fix. Because of HMRC delays processing paper returns I waited for the 2016-17 fix then filed. HMRC accepted the 2016-17 calculation including TSR. HMRC's 20/11/18 SA302s have a different TSR. My manual TSR calculation agrees with the original figures. I can't see how HMRC arrived at their TSR. Could HMRC have got it wrong or have I missed something? In my cases it is only the gain that puts the clients in the higher-rate tax band. I have noticed something. The difference in the TSR happens to be 20% x N x (£500 PSA - savings income).

Thanks (0)
By kevinringer
21st Dec 2018 09:09

HMRC's enquiry window is 12 months from the date of filing the Return. What is the legal position where HMRC send a recalculation more than 12 months after the Tax Return has been filed?

Thanks (0)
By We're_all_mad_here
08th Feb 2019 16:51

Hi Tim,

Just tried the free TSR checker and got different figures to what HMRC have told our client in their November letter.

I appreciate that it would be difficult to say without all of the facts and figures but in general can your checker get 'confused' if there were two chargeable event gains in the 2016-17 tax year?

I have worked out the TSR and anticipated liability manually in conjunction with your 'Its all Gone Pete Tong' article and get back to a figure close to HMRC's revised TSR.

Just wanted to Check.



Thanks (0)
Replying to We're_all_mad_here:
Tim Good profile image
By Tim Good
08th Feb 2019 19:09

Email me at [email protected]

Thanks (0)