The number of exclusions from online filing for 2016/17 SA tax returns appears to be growing. The only solution for the affected taxpayers is to file a paper tax return, but are they adequately warned of the risk of filing online?
The first major problems with the tax return software for 2016/17 were made public in late March 2017. I reported that two directors of Absolute Software (Tim Good and Giles Mooney) discovered the algorithms they had freely provided to HMRC to solve two computation issues hadn’t been fully incorporated into the official standards for tax return software.
This meant that tax software which complies with those standards will, in certain defined circumstances, produce an incorrect tax computation for 2016/17. If the tax return software doesn’t follow the HMRC set standards, the tax return and tax computation it produces will be rejected by HMRC’s system.
In those situations, the taxpayer has no choice but to file a paper Self Assessment (SA) tax return. The filing date for the paper return is effectively extended to 31 January as the taxpayer has a reasonable excuse for not filing online.
When HMRC receives the hard copy tax return it will manually process the figures and calculate the tax due using software which does take account of all the faults which appear on the exclusions list (see below). The result should be that a taxpayer who files a paper return will see the correct amount of tax due appear on their SA statement.
This is not a new situation. Every year there are a number of circumstances which HMRC judge to be so rare that it is not worth spending the development time to include them within the tax software standards.
For example, a taxpayer who has, say, 50 different self-employed trades or employments to report in the year will not be accommodated in tax return software, so will have to file a paper SA tax return.
The software producers need to know which situations to explicitly excluded from online filing using their tax return software, so HMRC list all those exclusions on this document: Self Assessment individual exclusions for online filing.
HMRC has issued at least three versions of this list for 2016/17 SA returns, but you won’t find the most recent document (dated 11 April 2017) on gov.uk. The above link takes you to the website of one of those software producers.
For 2016/17 there are 28 live exclusions for online filing, 10 of which are new for 2016/17, and one was new in 2015/16 and has been carried over. It is these new entries (numbered 47 to 57 on the list) which are most concerning. HMRC has said these errors will be fixed for the 2017/18 SA tax returns but not before that.
Is HMRC software correct?
All approved tax return filing software should (if it has incorporated the full exclusions list), block online filing of SA tax returns that fall within one of the situations on that list.
However, from comments posted in various forums, it is apparent that the free HMRC software for filing SA tax returns has not taken account of all the exclusions.
For example, an AccountingWEB member commenting on the article ‘Errors in tax return software’, said he submitted his own tax return using HMRC’s free software and found he was overcharged £1,375 in tax, as the savings allowance and dividend allowance had not been correctly offset.
On another tax forum, a taxpayer asked why his foreign dividend tax credit was not calculated correctly when using the HMRC software. This appears to be an example of exclusion number 57 on the exclusions list.
It is clear that the problem lies with the HMRC software standards, which do not reflect all the requirements of tax law when setting the parameters for the income tax calculation.
I have some ideas about how these problems could be avoided in the future, which I will explore in a future article. Do let me know your views by commenting below.
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.