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Self assessment exclusions: New glitches uncovered

HMRC issued new specials and exclusions lists on 13 December detailing a number of new scenarios where taxpayers will be unable to file electronic self assessment returns.

10th Jan 2020
Head of Insight AccountingWEB
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There are four new exclusions this year (109, 110, 111 and 112) plus two new special cases (35 and 36), where affected taxpayers will need to file paper returns accompanied by reasonable excuse forms.

BTCSoftware director Rob Ellis commented: “Publishing the lists in mid-December is inconvenient to say the least. We can incorporate the suggestions, but nobody wants to update their software at this time of year.”

To cope with the situation BTCSoftware has built-in a retrospective check against the latest exclusion and special case lists – if it identifies that a return could be caught, it will alert the user and suggest that they check previously filed returns for the same condition.

Thomson Reuters tax product manager Mark Purdue said it was too late for the company to incorporate the December exclusions in its desktop self assessment software ahead of the 31 January deadline. “In this scenario, we inform users of any issues where our computation has the same issue as HMRC’s,” he added.

Two of the new exclusions relate to the application of Scottish income tax bands and how they interact with foreign income (110) and Gift Aid (112).

The independent Scottish parliament enacted different tax bands to take effect from April 2017 and from April 2018, an extra 1% of income tax was added for Scottish residents in each band.

“There were bound to be some exclusions because of the complexity of the Scottish tax calculations,” said Ellis

In the example presented for exclusion case number 112, the SA calculator does not produce the correct balance of the intermediate rate band available to lump-sum income from a redundancy payment. With no personal allowance set against it, £12,230 of the example £37,150 redundancy payment lump sum should be taxed at 21% rather than 41% - a difference of £2,446 on the example - £12,230 x (41%‐21%). HMRC estimated that 350 people would be affected.

Several of the existing exclusions affect very small groups of taxpayers – 10 or fewer. The new exclusion 109, however, applies to an estimated 200 taxpayers born on 6 April 1953, who would have reached state pension age on 6 April 2018. They are affected by the wording of social security regulations stating that they are liable for Class 4 NICs if they are over the pension age at the beginning of the tax year. That exemption does not apply to those born on 6 April 1953 but if they enter that date into the SA calculator the system will deem them as exempt for being over the state pension age.

Each exclusion on the list includes a mnemonic description setting out the software logic. The calculation routines can take up several lines and intimidate non-programmers, but this addition to the exclusions list was made since 2018 when HMRC published a raft of exclusions for 2016-17 returns a week before the self assessment deadline, many of which were related to the calculation of top-slicing relief  (exclusion 81).

Top slicing conundrum

The latest batch of exclusions triggered another issue for Tim Good, the man who brought the top slicing relief conundrum to light. Since challenging HMRC’s formula for applying reliefs in ways that did not produce the best outcome for taxpayers, Good has started looking into the department’s process for automatically correcting returns from previous years.

“For the second time last autumn, HMRC ‘autocorrected’ assessments where the original calculations were wrong,” Good explained. “This was done for 30,000-40,000 2016-17 returns in November 2018 and around 15,000 2017-18 returns in October 2019.”

When Good asked HMRC how many of the automatic corrections increased the taxpayer’s liability, he was told that the changes had reduced the liability for a “majority” of cases.

“I’m beginning to get concerned,” he added.  Because HMRC has not provided copies of its corrected Self Assessment Calculator spreadsheets for those years, “We just don’t know how many taxpayers will have been caught [with additional liabilities] in 2017-18 or 2018-19 following invalid autocorrections.”

Replies (2)

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By Duggimon
13th Jan 2020 09:49

“There were bound to be some exclusions because of the complexity of the Scottish tax calculations,” said Ellis

The calculations aren't so complex that we couldn't do them on a bit of paper and tell that the HMRC version as implemented by our software was clearly and obviously wrong, as I mentioned in a reply here:

https://www.accountingweb.co.uk/any-answers/taxing-income-falling-into-s...

as well as in another earlier thread.

The fault as ever lies with HMRC and their lack of testing, thought, efficiency or competence. The December change to include these exclusions isn't so late because it's so obscure and complex it's taken them eight months to uncover them, it's because it's taken them eight months to react to an obvious problem brought to their attention almost immediately once 2019 tax returns began to be filed for Scottish taxpayers.

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Mohit Baheti
By camohitbaheti
13th Jan 2020 12:27

With all this, accountants are bound to be on their toes always, as you never know what can come out in the last minute.

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