BTCSoftware has issued a warning to its customers about new and unanticipated HMRC exclusions that are showing up on current online 2016-17 self assessment returns. And further issues are continuing to appear as tax preparers head towards the 31 January deadline.
Five new exclusions have come to light, according to a BTC statement issued on Wednesday morning.
HMRC’s programmers are aware of the issues brought to their attention but do not have time to fix them at this point in the tax year. Even if they did correct the exemptions, software developers would not be able to pick up and implement them in time.
Instead, they are advising taxpayers and their agents to go ahead and file with the erroneous figures and pay the tax due – but alert HMRC of the situation. BTC suggested the best way to do this is in the additional information box on the main tax return form (SA100 box 19).
HMRC plans to resolve the issues after 31 January and will re-calculate affected returns.
“If the recalculation means, as a result of the official HMRC computation being incorrect, you have paid too little tax then you will be expected to make up the shortfall but you should not be fined or be charged interest,” an HMRC official told BTCSoftware.
Similarly, if you have paid too much tax, you will get a refund.
Spate of changes
The ICAEW Tax Faculty reported sightings of other errors. One relating to a small number of electronic SA900 returns for trusts was corrected on 16 January. Again, HMRC advised that payments should be based on the tax calculated by commercial software. The tax department will check and correct calculations on affected returns filed before that date.
An error in HMRC’s calculator that does not allow the CGT annual exempt amount (and possibly any remaining basic rate band) to be wholly set against gains due at 18/28% rather than 10/20% is being investigated. And a couple of taxpayers have reportedly seen HMRC adjustments for marriage allowance reduce the liability, in one case to zero and in another to the previous value for payments on account.
Tax lecturer and Absolute Software founder Tim Good, who started flagging up problem calculations last summer, recently uncovered another bizarre quirk where a net pension contribution (or gift aid donation) of £1,000 will increase the tax liability by £187.50.
“As far as I can tell, this is not covered by any of the exclusion cases,” Good said. “One of our users submitted a paper return in November 2017 exhibiting this error and received a letter on 10 January 2018 from the HMRC Assistant Officer that stated, ‘I have sought advice from our Technical Support who have advised that we cannot comment on the software that you use and that the calculation that we issued stands.’”
Like Good, BTCSoftware became aware of the emerging calculation issues after an eagle-eyed accountant queried an interest calculation in the software where a small reduction in interest income resulted in an increased tax liability.
BTCSoftware director Rob Ellis said these glitches were the side-effects of a spate of changes that have been introduced to the tax system.
As Della Hudson explained in August, the introduction of the dividend tax and dividend allowance, savings allowance and savings nil rate band have triggered a surge in calculation exclusions for the 2016/17 tax year, for which HMRC advises submitting a paper return.
Section 25 of The Income Tax Act 2007 requires reliefs and allowances to be deducted in a particular sequence to give the taxpayer the greatest benefit. But HMRC software specifications for the 2016-17 tax year were set up to use the personal, dividend, and savings allowances in a fixed order, which may not necessarily be in the best interests of the taxpayer.
The issue also cropped up in Any Answers on 8 January, where one member wondered why their calculation differed from the one produced by their tax software. Portia Nina Levin was on hand to explain the discrepancy.
Many of these exclusions were fixed in October with an in-year update to HMRC’s systems, but the official exclusions list was updated to version 8.1 on 9 November with new exclusions.
“This year’s online filing season has proved significantly more challenging,” said Ellis. “With the sheer range of new taxation legislation to apply, along with HMRC’s ambition to further digitise tax filing, change (and learning from the changes) was inevitable.”
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John Stokdyk sadly passed away in June 2023. He had been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he investigated the profession's use of technology around the world. He devoted his spare time to technology history and an oddball collection of stringed...