Tax return filing farce continues

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HMRC has amended the tax calculation for 2016/17, which should allow more taxpayers to file SA tax returns online, but software producers report continuing problems.

Partial fix

On 23 October HMRC implemented an in-year fix to the official personal tax calculation, which it claims will solve the majority of the problems that were blocking online filing of SA tax returns for 2016/17. The fix resolves the issues listed in 11 exclusions on the list of SA individual exclusions for online filing, being the exclusions numbered: 48 to 56 and 58 to 59.

Software producers have been working night and day to deliver revised versions of their tax return software which align the integral tax calculation with HMRC’s official version for 2016/17. If the tax calculations are not aligned the online submission will be rejected as an invalid tax return by HMRC’s systems.

Most of these software companies will have released new versions of their software over the last weekend, so check you have the latest version before attempting to submit any further tax returns online. However, beware of phishing emails that target tax professionals who expect tax software updates, as we reported in August.

More exclusions

As part of the process of solving the tax calculation problems HMRC has revised the list of online exclusions. Version 6 of this list was released on 16 October, then version 7 came out at 4pm on 19 October, and it is now available on gov.uk if you follow the link.

This latest version of the exclusions list includes 76 issues, but 42 of those have been removed or resolved, leaving 34 active problems. For most of these active issues HMRC has attempted to quantify the potential tax at stake, ie how much tax the taxpayer will be overcharged if that particular issue applies to him or her.

This is helpful. If you know your client will potentially pay a maximum of say £220 in extra tax if the tax return is submitted online (such as in exclusion no. 66), but your additional costs for submitting the tax return on paper will be £180+ VAT you can have a sensible discussion about the costs and benefits with your client.

Exclusion 68

This exclusion concerns savings income which has been incorrectly allocated against the basic rate band (tax rate 20%), when it should be set against the savings rate band (tax rate 0%). This happens when the total of non-savings income (salary) is less than the personal allowance plus savings rate band: £16,000, so there should be savings rate band available. Where dividends are received the dividend allowance of £5,000 should be set against dividend income, and the net dividend income should not soak up the savings rate band.

Exclusion number 68 is still live, but it has been changed between version 6 and version 7 of the exclusions list, as it now includes issues previously listed under exclusion number 71.

Rob Ellis of BTCSoftware Ltd believes that exclusion 68 is blocking far more tax returns than it should do, in other words it is picking up too many false positives which should not fall into that exclusion. He has raised these concerns with HMRC, and this may result in a further version of the exclusions list being issued.  

Tim Good, managing director of Absolute Accounting Software Ltd said. “The exclusions 68, 69 and 70 cover a huge number of possible income combinations. For example: salary of £38,000 and dividends of £7,000 should give a liability of £5,800 against the HMRC calculation of £6,050. Also: salary of £10,500, interest of £6,100 and dividends of £10,400 should give tax of £375 but HMRC make it £405. These are not particularly unusual cases.”

Groundhog day

What is your experience of the revised 2016/17 tax return software? Have you been able to submit tax returns online with few problems, or are you still getting a high rejection rate?

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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27th Oct 2017 15:34

Now that the income tax allowances/rates/bands have been made more and more complicated, I have to ask what on earth has the Office of Tax Simplification been doing all this time.....?

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to Swedish Chef
27th Oct 2017 16:54

Rearranging the deckchairs on the Titanic springs to mind!

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to Swedish Chef
30th Oct 2017 11:12

It was set up as "Jobs For The Boys". Complete farce.

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27th Oct 2017 18:03

All this will be a thing of the past with MTD.

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By Tornado
to lionofludesch
27th Oct 2017 18:22

or perhaps -

All MTD will be a thing of the past with this.

HMRC should start with the basics and just ensure that they can at least organise a beer party in a brewery before progressing to anything more complex.

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to Tornado
27th Oct 2017 18:38

The trouble is that HMRC can simply wash their hands of it, say it's all the taxpayers' fault for choosing the wrong software and watch the penalties roll in.

We're not dealing with people with integrity here.

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By Tornado
to lionofludesch
27th Oct 2017 23:41

"watch the penalties roll in"

I think we will get to a situation where there will be so many penalties rolling that it will become impossible to collect them, especially if significant numbers of people decide to appeal against them and others simply ignore them.

Having to issue endless penalties is a clear indication that there is something wrong with the system, but as you say, We're not dealing with people with integrity here.

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to Tornado
30th Oct 2017 09:05

I think HMRC need to remind themselves what a brewery is, and how it is supposed to work before trying to have 5 drinks parties each year rather than just one!

[5 parties = 5 headaches!]

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28th Oct 2017 00:11

I am a bit confused as to why software would pick up "false positives". Presumably that means software is refusing to file some cases that HMRC are calculating correctly. Why would software do that, and why is that HMRCs fault?

As for my experience, I had several cases that my software had previously refused to file online because HMRC would have rejected it. I revisited two of them at the start of the week and they were both validated and accepted. So I will revisit the remaining returns over the next week or two and hopefully those will go through smoothly too.

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By chatman
to Tim Vane
30th Oct 2017 10:50

Isn't it the case that submissions are rejected if the tax calculated doesn't agree with HMRC's calculation?

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to chatman
30th Oct 2017 12:20

chatman wrote:

Isn't it the case that submissions are rejected if the tax calculated doesn't agree with HMRC's calculation?

Of course, but a "false positive" suggests that the exclusion is not resulting in an incorrect result. Why would the software refuse to submit it when the calculations agree? Makes no sense to me. I would expect the software to file the return if it would be accepted by HMRC.

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By chatman
to Tim Vane
30th Oct 2017 12:59

Ah yes, I see your point.

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By ldcldc
30th Oct 2017 10:53

As we all know MTD is going to be a nightmare. Its hard enough to get info out of clients once a year let alone extra fees. I wonder if anyone at HMRC reads any answers or indeed any of this.
I'm glad I intend to retire at the end of the year !

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30th Oct 2017 11:15

If HMRC had made genuine errors in programming their systems, I would expect their calculations to result in some overpayments and some underpayments of tax. Why is it, therefore, that all these 'exclusions' seems to result in overpayments? Like the police when they make excessive use of speed cameras, this looks to me like HMRC milking a cash cow.

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30th Oct 2017 11:20

Whether HMRC's programming errors are careless or deliberate, surely tax software companies and practitioners have a right to complain and seek compensation from HMRC? In the past I've arranged for substantial professional fees to clients to be paid by HMRC because of HMRC's incompetence.

Details of how to complain are at https://www.gov.uk/guidance/complain-to-hm-revenue-and-customs

Note the following wording from HMRC:

"If we’ve made a mistake we’ll say sorry, explain what happened and put things right as quickly as we can.

"We’ll consider refunding any reasonable costs directly caused by our mistakes or unreasonable delays. Costs can include postage, phone charges or professional fees. You should keep your receipts if you want us to make a refund.

"If you think our actions have caused you worry or distress tell us straight away. In some cases we may be able to make a small payment to acknowledge this and apologise."

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By Tornado
to ddrysdale
30th Oct 2017 13:43

"If we’ve made a mistake we’ll say sorry, explain what happened and put things right as quickly as we can."

What a load of tosh. HMRC have a pathological aversion to apologising about anything. This is mainly because they work as a body and no person is going to take responsibility for anything.

With 85,840 employees, you will be speaking to just one who is say 5678 of 85840, All being part of the same entity, the answer from all of them will be the same. This is particularly evident when asking about MTD, the answer is always a quote from the Glossy HMRC brochure on MTD.

Perhaps this is not entirely fair, and a bit tongue in cheek, as sometimes you do come across HMRC employees who genuinely want to help, but this is the exception rather than the rule.

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to Tornado
30th Oct 2017 16:04

You're a bit out of date - there are nearer 56000 employees of HMRC with another 10000 due to go (before Brexit might have changed things - cf Taxation intervies of Edward Troup).

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By Tornado
to ruth.julian
30th Oct 2017 16:43

I obtained the information from Wikipedia -

https://en.wikipedia.org/wiki/HM_Revenue_and_Customs

- but as you say, this is about two years old now.

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to Tornado
30th Oct 2017 16:04

You're a bit out of date - there are nearer 56000 employees of HMRC with another 10000 due to go (before Brexit might have changed things - cf Taxation interview of Edward Troup).

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30th Oct 2017 14:12

Bad enough for 2016/17 but when we add in the complication of a different Scottish basic rate band for some income sources in 2017/18 I fear that the system will not cope at all.

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By 7555775
30th Oct 2017 11:29

And some people still think MTD is a good idea.... I am still getting emails from Alison Walsh, Director of Digital or whatever encouraging me to learn how to do all the things myself which accountants are paid to do with all their years of training, knowledge and expertise. And the only reason I can see for MTD is missing trader reconciliations to look for under declared VAT.

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By Catti
30th Oct 2017 12:02

Quote "If you know your client will potentially pay a maximum of say £220 in extra tax if the tax return is submitted online (such as in exclusion no. 66), but your additional costs for submitting the tax return on paper will be £180+ VAT you can have a sensible discussion about the costs and benefits with your client."

Or, put another way, I'm going to deliberately file an incorrect tax return because you don't want to pay me extra?

Doesn't sound right to me.

Might be OK if you are sure you can claim the extra via a compensation claim against HMRC. Otherwise, not for my clients.

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By chatman
to Catti
30th Oct 2017 12:14

Catti wrote:

Quote "If you know your client will potentially pay a maximum of say £220 in extra tax if the tax return is submitted online (such as in exclusion no. 66), but your additional costs for submitting the tax return on paper will be £180+ VAT you can have a sensible discussion about the costs and benefits with your client."

Or, put another way, I'm going to deliberately file an incorrect tax return because you don't want to pay me extra?

Doesn't sound right to me.

Might be OK if you are sure you can claim the extra via a compensation claim against HMRC. Otherwise, not for my clients.

How about "The fee will be higher this year, as there is more work involved"? Sound right to me.

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to Catti
30th Oct 2017 13:30

Catti wrote:

Quote "If you know your client will potentially pay a maximum of say £220 in extra tax if the tax return is submitted online (such as in exclusion no. 66), but your additional costs for submitting the tax return on paper will be £180+ VAT you can have a sensible discussion about the costs and benefits with your client."

That quotation is disgusting and indicative of the contempt with which HMRC views its customers.

My sensible discussion would be "HMRC are costing my client money with their incompetence. I will look to HMRC for payment."

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30th Oct 2017 12:06

What I love is the constant reminder that "in order to get your tax return right and to avoid penalties" you must listen to our blurb.
Maybe that's why they're doing away with the return. No more errors on either side. Sounds perfect to me.

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30th Oct 2017 12:36

The sensible thing to make MTD work would've been to keep the annual filing, however have the automatic feeds from banks, employment and so on.

Then be able to use cloud accounting or even be able to have specifically formatted spreadsheets to easily fill in information such as private self-employed income and expenses.

The idea is to make things simpler, the current regimes are out there to make matters more complicated for clients and agents, I believe for provoking more fines because people will struggle to get their heads around quarterly reporting!

I appreciate I am avoiding the VAT Issues, but that is because I'm quite new to this and have had little/no exposure to VAT.

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By 7555775
30th Oct 2017 13:08

I was just wondering about those poor trainees who have just started training, is there going to be anything for them to do? Has anyone told them? What with the current 70,000 plus special advisors, which we are expected to become instead of actually being Accountants and Tax Advisors, is there enough to go around. I tried branching out into business advice but no one was interested if they had to pay for it.

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30th Oct 2017 14:14

"If you know your client will potentially pay a maximum of say £220 in extra tax if the tax return is submitted online (such as in exclusion no. 66), but your additional costs for submitting the tax return on paper will be £180+ VAT you can have a sensible discussion about the costs and benefits with your client."
I don't follow this. I will submit online if possible and will only submit on paper if HMRC reject it. I won't have any choice. If HMRC has issued the client with a notice to file, then the Tax Return has to be filed.

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30th Oct 2017 14:15

You asked for experience of the revised software. I'm expecting the majority of my cases to be case 60 (farmers 5-year averaging) which has not been fixed by HMRC. My software PTP could handle it beforehand and still handles it now. HMRC could not handle it beforehand and still can't handle it now. Nothing has changed.

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30th Oct 2017 15:42

Rebecca, can you please explain your calculations of £5800 and £375.

Thank you

CLIVE MORRIS

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30th Oct 2017 19:45

My software calculates correctly - and it warns me not to file due to being one of the exclusions. I'm imagining many of our software choices do. So, doesn't that mean that the HMRC provider is in breach of contract?

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30th Oct 2017 23:07

I am confused. You are saying that the HMRC online system may not calculate the correct tax in certain circumstances. Then you say commercial software providers are working like mad to align their systems with HMRC. So do I assume that commercial software providers are simply amending their software to give a wrong calculation that agrees with HMRC? Surely not. My wife's tax affairs are theoretically simple - she receives dividend and interest income only. I calculate her tax payable on a spreadsheet and I get a different result to HMRC. HMRC insist that all their systems are correct and their calculation is the right one. I have not had this problem until recently and have been doing her tax for many years. What HMRC are telling me seems completely at odds with everything here.

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to unclejoe
31st Oct 2017 12:54

unclejoe wrote:

I am confused. You are saying that the HMRC online system may not calculate the correct tax in certain circumstances. Then you say commercial software providers are working like mad to align their systems with HMRC. So do I assume that commercial software providers are simply amending their software to give a wrong calculation that agrees with HMRC?

No, I think they mean aligning HMRC's system to the commercial software.

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31st Oct 2017 12:08

Oh dear, fun and games!

A paper (because of X68 issues) submission came back with the same assessment as the then-existing, faulty, SA software-generated assessment. I queried this with HMRC and was given (by three different officers) some nonsense explanation as to why. I had run the data through the latest SA software and knew that it would correctly parse the data and so asked HMRC if they would just discard the entire history of this return and permit an online submission. No.

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31st Oct 2017 12:30

Could we just agree with HMRC:

1. To use the box 15 on the tax calculation page for an adjustment, and
2. Add additional information along the lines "Box 15 used to adjust for exclusion x",
3. Online file, and
4. More generally, ask the Office of Tax Simplification to start to earn their keep?

........and then be done with it?

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to Kaylee100
31st Oct 2017 13:10

Your suggestion is far too sensible to be used by HMRC.

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31st Oct 2017 12:48

For Clive Morris etc.

The nuts and bolts of Rebecca's examples:

Both of the examples show that the game is all about optimising the allocation of reliefs and allowances - and the only rule of that game is - apply R&As where the tax would otherwise be the highest, so:

Example 1. Before optimised distribution of reliefs and allowances, the order of taxation rules shove £2k of dividends into 32.5% territory. There's nothing relievable at more than 32.5%, so allocate £2k of R&As to that, leaving £9k of R&As to be applied to the £38k of non-savings income. 20% of £38k-£9k is £5,800.

Example 2. Maximise the use of the £5k SRA. Due to the perverse nature of the SRA as it is now, this has an up-to-40% tax-equivalent value and so, in this basic rate case should be addressed by optimisation first. To do this, allocate enough R&A to cover the entire non-savings income. Then the client gets full SRA and PSA relief, leaving only £100 of the savings potentially taxable at 20%. Zap this with £100 from the remaining R&A because relieving this of 20% liability is better for the client than relieving £100 of dividend at 7.5% The £5,000 DA and the remaining £400 of R&As leave £5,000 of dividend income taxable at 7.5%

So, non-savings fully relieved, savings fully relieved, then £5,000 taxable at 7.5% is £375.

[Typos corrected!]

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31st Oct 2017 12:57

Swedish Chef wrote:

Now that the income tax allowances/rates/bands have been made more and more complicated ...

But the sad thing is that, despite all the changes, the logic behind the relationship between non-savings, savings and dividend income, the aggregate PA, the SRA, the PSA and the DA is NOT at all complicated. It can be written down unambiguously in a couple of paragraphs and it takes only 100 or so lines of program to implement.

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to emanresu
14th Nov 2017 14:48

I think it would help many of us if you could write and post those couple of unambiguous paragraphs.

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31st Oct 2017 16:36

We filed a 2016-17 return online for a client back in July 2017. Includes pensions, interest, dividends, some partnership income and a chargeable event gain. In total, income in excess of £100k so the PA is starting to be reduced.

Three months on, HMRC have spat out a 2016-17 SA302 which does not include the chargeable event gain. It has disappeared from the calculation altogether, significantly reducing his tax payable as it now takes his gross income below £100k.

Phone query to the Agent Dedicated line, who are at a loss to explain it and have referred it to a "technician" for a call back. What I suspect has happened is that the change to "correct" HMRC's tax calculation software has forced a revised calculation, which has put him within one of the new exclusions meaning the whole thing is now wrong despite being right when it was initially filed.

Beer-up in a brewery, he says trying to dodge the swear filter.

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