HMRC gets P800 calculations wrongby
HMRC is sending out P800 tax calculations to taxpayers that do not follow the legal requirement to apply allowances to the taxpayer’s advantage.
Tax experts, professional bodies and software developers have encountered instances where P800 assessments do not match the usual self assessment (SA) calculations.
When questioned on this point by software developers, HMRC said it was using different methods to calculate P800s and liabilities under SA – one operated by the PAYE team and one by the SA team based on its specification documentation.
“PAYE and Self Assessment are managed on separate HMRC systems so calculations operate independently for each,” a spokesman told AccountingWEB . To protect customers from the risk of receiving an incorrect PAYE calculation we pro-actively identify those who may be affected and calculate their correct tax position manually.
The HMRC PAYE team responsible for the P800 process is aware that the allocation of reliefs and allowances is not always in the taxpayer’s best interests, as set out in legislation, but are not in a position to update the logic, the department said.
“If a P800 calculation is inadvertently issued without correctly allocated allowances or reliefs we will act quickly to correct the issue as soon as it is brought to our attention. We are actively exploring opportunities to deliver a technical solution to prevent this risk,” the tax department official added.
A tweak too far
Absolute Software director and tax lecturer Tim Good uncovered the discrepancies after taxpayers asked him to review their P800 calculations. He traced the issue back to how HMRC's default sequence for applying the personal allowance.
“Legislation has always required personal allowances and relief to be allocated in the most favourable way to the taxpaper,” Good said. “Until we discovered it, HMRC’s calculator allocated them using the same hierarchy as the allocation to the rate band: non-savings income; savings income; and dividends.
“The Revenue's use of that hierarchy worked until George Osborne introduced the personal savings rate band, personal savings allowance and dividend income allowance in 2016. Those tweaks made the shortcut allocation inaccurate."
It has taken HMRC until 2020/21 to get the specification right, which is the current year for which accountants are now filing. But now it appears HMRC is using a different program to calculate the PAYE tax that displays the sort of problem that goes back to those 2016-17 complications, Good noted.
“I guess they didn’t get the memo about the updated calculation. I don't care if the errors are to the Revenue's or the taxpayers' advantage. All I'm concerned with is let’s just get the calculation right.”
Someone needs to check the spec
The continuing discrepancies in the logic underlying HMRC’s tax computations prompted a renewed call from AccountingWEB’s consultant tax editor Rebecca Cave for independent oversight on tax software specifications.
“HMRC cannot be bothered to correct its software, so people have been overpaying tax for years. Even if it’s £10 or £100, it’s still not what the law says,” she said. “All of this could be avoided if there was an independent and competent third party that checked HMRC's specification and spreadsheet against the tax law before it was released to developers.”
Forbes Computer founder David Forbes drew a direct line from the P800 issue to the MTD for income tax (MTD for ITSA) process due to become mandatory in 2023. “At the moment HMRC gives you a tax return and the accountant does a calculation with their software. HMRC does the same and checks for any discrepancy. Come MTD ITSA, our software will no longer calculate tax. HMRC will do that and the software will do an API call on the result. There won't be that double-check.”
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AccountingWEB’s interim Editor in Chief has been with the site since 1999 and returned to the editorial hot seat in March 2020 to support the team through the pandemic. When not tending to the needs of AccountingWEB members and geeking out on their technology habits, he devotes much of his time to an oddball collection of stringed instruments...