Self assessment tax calculation niggles ease
Calculation flaws and other processing quirks within HMRC’s self assessment computer programs are improving, but continue to cause concern within the software industry.
HMRC recently updated its 2018-19 exclusions list detailing the situations in which taxpayers would have to file paper returns or use another workaround where the department’s specified instructions did not calculate tax liabilities correctly.
Taxpayers who can’t file online because their tax affairs fall into an exclusion built into third-party software will need to file a paper tax return. They will have until 31 January 2020 to file their 2018-19 SA return rather than the mandated paper return deadline of 31 October 2019, but they will need to submit a reasonable excuse form explaining that an exclusion applies along with their tax return.
While 18 exclusions have been removed from the 2018-19, nine new ones have been added. According to industry connoisseurs, this is a significant improvement on 2016-17 self assessment returns, when HMRC was issuing new exclusions in the final week before the 31 January 2018 filing deadline.
“The exclusions so far this year aren’t that bad. The biggest negative is the size of the font,” said BTCSoftware director Rob Ellis. “Most of the new ones seem to be real edge cases affecting taxpayers in their hundreds rather than thousands as before.
“One good thing to come out of the 2017 debacle is the fact that HMRC now gives clear detection criteria for developers to follow which makes it much easier for us to build into our products. This was something that we pushed for it’s great that HMRC now does this as a matter of course. This enables us to detect any issues at the time of calculation and guide the customers correctly regarding what to do next.”
Absolute Accounting Software’s Tim Good has spent the past few years highlighting inaccuracies and calculation logic that implements the law incorrectly, for example with the way HMRC applied top-slicing relief to dividend income in 2017-18. In the current list, the examples for three exclusions are presented with figures Good supplied to HMRC.
According to Good, this year's updated list is a marginal improvement but there are still too many scenarios where the HMRC calculator overcalculates the liability.
They include exclusion number 101 that applies savings income earned by taxpayers in the nil rate band with chargeable event gains.
Throwing a set of new Scottish income tax rate bands into the mix only complicates matters further, increasing the likelihood of yet more calculation errors in future. The logic is becoming so complicated that HMRC and developers are struggling to agree what the definitive calculation should be.
To illustrate the growing confusion, Good cited Exclusion 81 covering how top-slicing relief is applied when an individual is a non-taxpayer, subject to the savings nil rate or basic rate experiences a chargeable event gain.
“Exclusion 81 was originally introduced when somebody told HMRC that the HMRC calculation was wrong. I then explained to HMRC that their calculator was in fact right and that their correspondent was wrong,” he said.
HMRC accepted that Good’s reasoning and the existing specification were correct. “But instead of removing Exclusion 81 they left it in saying, ‘a paper return can still be filed if developers have not been able to remove from their products’. I think it sets a very bad precedent to allow an exclusion where a tax return programme calculates the tax incorrectly. The appropriate response should be to reject such returns and require the software developer to correct their errors,” he said.
“It is a shame that the larger software developers don’t seem to have systems to check the HMRC calculator when it is issued (and that HMRC themselves do not have a more robust system of testing).”
In 2018 AccountingWEB tax editor Rebecca Cave highlighted the underlying conflicts of interest at HMRC, which defines the calculations used by software developers but also collects the tax that may be excessive as a result of any oversights. Her solution is to set up a standards committee independent of HMRC, software companies and professional bodies to review and verify the software specifications set by HMRC for all taxes.
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