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.
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.
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.
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.”
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.