Marriage allowance and ER snags hold up returns
In its latest agent update, HMRC notified tax advisers of some of the main issues causing delays to tax return processing effort during the busy season.
Page 5 of HMRC’s Agent update 81 reports that around 90,000 of the 11m tax returns filed online require clerical review, resulting in processing delays for the client.
The clerical reviews differ from the exclusions list of situations that cannot be processed by HMRC’s computers, but do feature similar characteristics such as complications caused by tax changes.
Marriage allowance transfers
The marriage allowance transfer tops the list of HMRC’s most likely areas to trigger a clerical review. Introduced in 2015, the transfer can be used by married couples or civil partners to switch 10% of the personal allowance from a person who is not using it to their basic rate taxed partner – potentially saving them £250 in tax on the £1,250 of allowance transferred.
The problem is that the tax return filing process has no mechanism in place to effect and claim the transfer and reports are reaching AccountingWEB of delays on affected returns.
Back in May 2020, AccountingWEB members started reporting difficulties making allowance transfers on their clients’ behalf because the non-taxpaying client had to apply for a transfer either online or by phone or letter.
The request to make the transfer has to be recorded on HMRC’s system for the recipient’s tax return to be processed correctly, HMRC advised. Advisers can check whether the transfer is in place by reviewing the client’s P2 notice for the relevant tax year through your online agent account, the department advised.
“It is also preferable when both partners are in SA, that the transferring partner submit their tax return before the recipient. This will allow the SA system to process the transfer for that year only,” HMRC added. More information about the transfer, which can be backdated to the year of introduction, can be found on HMRC’s marriage allowance page.
An exasperated kevinringer posted on 8 January: “I've got seven cases [of processing delays]. All are marriage allowance recipients. All are refunds. All the spouses’ returns have been filed and each one contains a MA claim. This happened last year, and the year before and the year before that. This year tax returns with MA claims earlier in the year were all captured quickly. I've only had the problem with returns submitted since the autumn.”
Entrepreneurs’ relief changes
Entrepreneurs’ Relief (ER) is becoming Business Asset Disposal Relief in the current tax year, but alongside that transition 2019/20 returns include a new option to claim Investors’ Relief (IR).
As detailed by the CIOT and other bodies IR should be claimed by entering the qualifying gain in Box 49 of the SA108 for, using the 3-letter code “INV”. Claims for ER should be made in Box 50 of SA108 using the code “ERL”.
According to the CIOT, HMRC has identified several returns where claims to ER have been submitted using the code ‘INV’ with gains showing in Box 49. The CIOT technical note speculated that the issue may arise in some software packages being used to file returns.
BTCSoftware director Rob Ellis batted back the suggestion, adding: “I can understand how IR & ER could be confused by some taxpayers as the CGT section is always fiddly to complete and usually the one that changes the most from one year to the next. Our software guides the users to use the correct boxes.”
While the source of the rogue entries has yet to be identified, Ellis predicted more confusion on this front next year when ER becomes Business Asset Disposal Relief. “But at least HMRC has now built in the £1,000,000 lifetime cap into the forms, which will help,” he said.
Other potential sources of processing delay noted by HMRC included:
- Large numbers of online returns submitted as amendments
- Submitting amended returns for years other than 2019/20
- Failing to notify HMRC that a taxpayer has set up as self employed (using form CWF1) when including Class 2/4 NIC on a return
- Filing a return when the taxpayer has received an SA832 closure letter
- Using non-compatible filing software designed for previous tax years.
See HMRC’s Agent Update 81 for further details.
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