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HMRC gets P800 calculations wrong

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HMRC is sending out P800 tax calculations to taxpayers that do not follow the legal requirement to apply allowances to the taxpayer’s advantage.

10th Aug 2021
Editor in Chief AccountingWEB
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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.”

Replies (7)

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By 0098087
11th Aug 2021 09:55

MTD will go so well won't it!

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By Rgab1947
11th Aug 2021 10:25

Every time I read something about HMRC computers and systems I get depressed.

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By Paul Crowley
11th Aug 2021 11:54

The problem is that IT cannot get it right
Too many low level allowances
It needs a human to prioritise

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By Hugo Fair
11th Aug 2021 11:57

You've hit one of my many raw nerves with this article, John.
A lot of these problems go back to the days of Osborne - whose eventual epitaph should read "Never told the truth when the opportunity to mis-lead arose".
Do you remember the lead-up to RTI when we were told that it represented the death of the P45 or, indeed, that it would massively reduce the number of P800s issued each year (hopefully to zero)?
About as 'truthful' as the claim that MTD would bring an end to year-end tax returns!

And yes, of course, Rebecca is right to call for independent oversight on tax software specifications ... but it's been getting steadily worse for 10years (and this is now accelerating) - not helped by the near dismemberment of SDST (HMRC's Software Developers Support Team) that has turned them into a reactive mouthpiece instead of the co-operative function that sought involvement at the earliest possible stages (i.e. post policy but prior to draft specifications).
I could go on - but don't want to sound like a Jeremiah or, worse, a Cassandra!

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By sammerchant
11th Aug 2021 17:38

"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.

HMRC has a review process in place to find affected calculations and recalculating them manually, it added."

So that's all right, then! Not.

HMRC lost a number of their IT staff (IR35 issues?) and are no longer competent to perform the tasks (duties?) that are their responsibility. Perhaps they should use third parties - HMG does in so very many cases. The software companies may strike lucky and be paid very handsomely.

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By SteveHa
13th Aug 2021 08:07

A laudible idea, but would result in more sticking plasters on an already broken system. HMRC need to engage software engineers to go back to the drawing board and build a unified system from the ground up if they want to have a hope in hell of a digital future that works.

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By Paul D Utherone
17th Aug 2021 14:12

How on earth is it possible that one HMRC system for calculation of liabilities (PAYE/P800) does not follow the SA system computation that all our 3rd party software has to follow for us to be able to submit returns for clients!? [Rhetorical question, as I realise that the answer is "All HMRC systems are rubbish, none of them interact in meaningful fashion, and MTDIT is on target to be a complete omnishambles"]

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