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An excellent article but "HMRC staff are trained to look for a covering letter"? If my experience is anything to go by the covering letter will soon become separated from the return and lost. My advice is to number the covering letter "1 of 2" and the return "2 of 2". At least these trained staff will then be unable to deny receiving it.
I always work out the tax before I start the return anyway.
It guards against
a. the software being wrong, and
b. data entry errors.
It also helps me understand the effect of marginal changes.
It's a mistake to rely too heavily on software.
This is a really good thing to do. Doing the calculations helps you understand them much better, for example, as you say, understanding the effect of marginal changes.
I am too lazy to do it, and the effect is evident, even to me!
chatman wrote:
This is a really good thing to do.
Yeah. I know.
Yeah, the comment wasn't really directed at you.
why bother submitting a hand written tax return just wait for the update or use other software or are practitioners using this an excuse to charge more . im obviously one of those who is over reliant on software which i am extremely relaxed about
why bother submitting a hand written tax return just wait for the update or use other software or are practitioners using this an excuse to charge more . im obviously one of those who is over reliant on software which i am extremely relaxed about
I too am over reliant as I see no benefit in paying for a tax software subscription costing say £250 for me to then do it manually.
A bit like getting a dog and then barking yourself.
A bit like getting a dog and then barking yourself.
Fingers crossed that the dog can bark, though. A recent AW thread has revealed a circumstance in which two well-known packages disagreed.
3rd party software is unable to submit online until the changes are made at the HMRC end.
I pay a fortune for my software SPECIFICALLY so I don't have to go through the drudgery of calculating everything manually. Indeed, if I had to do this for every return, I would have to get rid of around 50% of my clients as it would take too long.
It is an utter disgrace that HMRC has devised such a complex and unworkable tax system that even THEY are unable to design software to cope.
How did we allow this to happen?
As evidenced by the quality of the questions posed on Any Answers, a large number of so-called accountants would have no hope of manually completing a tax computation, because they quite simply don't understand the rules.
But it is so - as, as Tim says, evidenced by some of the howlers appearing on Any Answers.
Earlier, you suggested that returns that, today, require a paper return should be held back to October, then submitted electronically as the exclusions will have been resolved by then. Do you really think that an organisation that has already tried and failed 20 times to get it right will get it right - and on time - the next time?
I think this is ridiculous and concur with Mo below. Of course there are people totally unqualified to complete this sort of work but that's a slightly different matter. Qualified people incl those with years of experience should be able to spot software errors easily
"For those tax agents who are overly dependent on their tax software, and who aren’t confident of calculating the tax manually, the tax calculation summary notes (SA150 notes 2017) may help you to do this."
Really - 'overly dependent on their software' - a very judgy pants comment if I may say so Ms Hudson.
There are many of us out here who legitimately use software as an aid to productivity rather than a substitute for knowing how to produce manual calculations. In the small firm I work for 2 people produce 1,200 SA returns, we are both perfectly capable of manual calculations but to actually calculate all the tax manually would mean at least a 100% increase in staff with associated fee increase.
In an age where HMRC are putting pressure on taxpayers and practitioners to increasingly depend on IT it is a disgrace that HMRC should have produced such a situation and implied criticism of practitioners who may struggle to cope with the consequences is really not helpful.
Thank you for your comment. To clarify, I am a sole practitioner running my own business with a small team.
Whilst we also rely on our software for our productivity (all tax returns submitted by 8 Jan) we still need the technical ability to spot when things go wrong (usually input error). Accountancy is about more than just form filling and it's good to hear that you still retain the expertise to calculate manually if required.
As stated in the article HMRC are taking the unprecedented action of a mid-year update and there are various options available to us. Whilst this will affect productivity (and profitability as we operate on fixed fees) HMRC are taking action.
As stated in the article HMRC are taking the unprecedented action of a mid-year update ...
Paper returns submitted some months ago and indicated as being due a reply by mid-August are, today, reported on by HMRC as not even started upon. I can't get HMRC to give a statement, but have you come across any suggestion that HMRC themselves are just ignoring Paper returns until the next update?
It strikes me that, if this is so, HMRC's strategy is even higher-risk than one previously thought. They're taking one heck of a gamble that this update will work.
My suggestion would be to ask your tax software supplier whether they have yet updated their algorithms to ensure that the personal allowances are allocated in the most tax-efficient manner (rather than in the traditional order, which did not generate these tax inefficiencies prior to 2017).
If they claim to have updated their systems, you can check that it is correct by creating a dummy SA 2017 return with earned income of £40,000 and dividends of £9,000. If the tax calculation results in a liability of £7,100, then it has not been updated to reflect the reduction in tax that can be achieved by allocating only £8,000 of the PA to the earned income and £3,000 to the dividend income, which produces a tax liability of only £6,725.
If your software is correct, you can try to file it with HMRC and you will likely get it rejected. Once HMRC have updated their systems, it will be accepted. I would simply make a diary note for early December to try to re-file all SA 2017 returns that were rejected for this reason and, if they are still rejected, only then need you worry about submitting a paper version (assuming you don't want to wait until the last minute over Christmas or January).
My attention was first drawn to this anomaly by Tim Good of Absolute Tax last December and their software correctly dealt with it back then. I currently use Taxfiler and it also now correctly allocates the personal allowance.
Thank you, carnmores. I wouldn't, however, call it "simples". Any Chancellor who can design a tax system that makes it hard to calculate the tax liability in one's head when the only income is £40k earned plus £9k divis is not one who is trying to make tax simple! Not that I believe that he was purposely trying to make it hard. I think that, like most tax policy, it got changed around so many times just prior to the budget that no one who understood the implications had time to run the numbers before the policy was announced at the despatch box. Perhaps Spreadsheet Phil can simplify it in the next budget? Mind you, they'd probably just c-ck something else up at the same time!
All the Chancellor had to do was make a rule that the personal allowance was allocated to the bottom slice of income first. If these off-piste allocations weren't allowed, there'd be no problem.
Chancellor makes up the rules - if they don't work, it's the Chancellor's fault.
True, but the recently introduced concept of allowances that don't reduce the amount of income that falls into the tax comp but, instead, only removes a slice of income once all other allowances and bands have been calculated is unnecessarily complex. Added to the (probably not anticipated when first introduced) creation of an interim 60% tax band above £100k and all of the other little anomalies, and we have far too many complexities that were caused for political, and not fiscal, reasons.
Sure - not to mention the HICB charge - which is a variable marginal rate band depending on the number of kids you have.
Absolutely ridiculous. Clearly drafted by a half-wit.
If they claim to have updated their systems, you can check that it is correct by creating a dummy SA 2017 return with earned income of £40,000 and dividends of £9,000.
This won't do. A single test case doesn't validate a process.
OK - people may rely on the software to do the calculation, and there's no point in redoing it. But what about checking that the bottom line is what you expect? Does it make sense? Eg client has employment income - was the code "correct"? If not, what under/overpayment would we expect? etc etc etc
With - still - such a ragged design specification from HMRC, who can be sure of the definition of "make sense"? I'm quite surprised just how well the commercial software producers have coped - but none of them can be sure that they're right whilst the spec. is so fluid.
And this is not just speculation. A recent AW thread has been all about two respected commercial software providers' packages disagreeing as to the tax liability.
So we have to wait until October to find out if the online tax calculations have been corrected. What if they aren't? Do we have to re-visit each one and then file on paper if they're still wrong?
And when exactly in October are they going to change the algorithm? The 30th 0r 31st probably. Doesn't leave much time for filing all the fouled-up cases. We might end up having to file paper tax returns post October for the ones they still foul up on, even after the change, and send covering letters.
Incidentally, it's not just the section 25 cases that are causing grief. I had a tax return the other day with no need to juggle the order of income and they still got it wrong. For some reason, their systems insisted on taxing part of his investment income as earned income, thus depriving my client of a substantial chunk of his nil rate savings band (even though his earned income was less than his PA, his investment income was less than the NRB and his dividends were all within the BRB). Without doing the calculations beforehand as a check, I may not have spotted that.
I know the tax system now is ludicrously complex, but most of the software houses have managed to cope with it without fouling up like this. Why not HMRC? Is it really too much to expect our national tax authority to get its sums right?