HMRC Tax Calculation Errors Update

Background

For tax returns to be successfully submitted online, the tax liability must be calculated in accordance with HMRC’s own tax calculation specifications. If it isn’t, the return will be rejected by the Government Gateway.

A number of inaccuracies were discovered within HMRC’s 2016-17 tax calculation, mostly relating to the interaction between the various allowances for savings and dividend income, the personal allowance, and the higher and additional rate tax bands.

Combinations of income which fell within the scope of the inaccuracies in HMRC’s tax calculation may have resulted in incorrect tax calculations.

Under these circumstances, the associated tax return will have successfully passed through HMRC’s online submission gateway without generating any calculation based errors.

2018-2019 Update

HMRC corrected many of the known issues in time for the release of their 2018-19 tax calculation but also acknowledged further inaccuracies. As a result a number of existing exclusions were removed from their list and a number of new ones were added. You can visit HMRC’s website for more details.

2017-18 Tax Returns impacted by HMRC Exclusions

HMRC issued the following statement to software developers in December 2018 regarding those taxpayers affected by exclusions:

“All Self Assessment customers need to file their 2017-18 return, make a balancing payment for 2017-18 and their first payment on account for 2018-19 by 31 January 2019 (if appropriate).

We are aware however that if a customer is affected by an exclusion they won’t be able to file online or get an accurate self-assessment income tax liability calculation for 2017-18.

In this instance customers should:

  • file their Self Assessment by paper return, along with a completed reasonable excuse claim by 31 January 2019.
  • make a reasonable effort to estimate their income tax liability for 2017-18 based on the information they have
  • make an appropriate balancing payment for 2017-18 and their first payment on account for 2018-19 by 31 January 2019.

Providing the return and payments are received by the deadline of 31 January 2019 HMRC will not charge a late filing penalty, late payment penalty and /or interest on the estimated amounts. Where we have been unable to stop the automatic issue of these we will accept being affected by an Exclusion as a reasonable excuse and the penalties will be withdrawn.

We will contact those customers who have needed to estimate their balancing payment to confirm their actual income tax liability. If this results in an additional amount being payable customers should pay any new amount due within 28 days of the notification to stop interest being added. As yet, we do not have a date for when this contact will be made, we will let you know once we have further information. Where a customer is uncertain if their circumstances match an exclusion and their software allows successful online submission, they should:

  • still file their Self Assessment return online by 31 January 2019
  • pay their estimated balance for 2017-18 Self Assessment and their first payment for 2018-19 by 31st January 2019

HMRC will subsequently:

  • identify any cases filed online where the calculation is incorrect
  • make any required correction to the income tax liability calculation for 2017-18 and 2018-19 payment on account
  • inform the customer of the correct income tax liability calculation for 2017-18 and any revision to 2018-19 payment on account
  • advise when the revised amounts need to be paid
  • inform customers that they will not have to pay late payment penalties and/or interest attributable to any additional amount arising from the correction if it is paid before the revised due date

For further information please ask your customers to speak to their tax adviser, or use our SA110 notes and SA150 How to fill in your tax return. Customers can also contact HMRC if they receive any penalties or accrue interest in this case.”

HMRC advice on submitting affected 2016-17 returns

HMRC issued the following advice in January 2018 for those taxpayers affected by the exclusions:

“All Self Assessment customers need to file their 2016-17 return, pay their balance for 2016-17 and make their first payment for 2017-18 by 31 January 2018.

As you know each year there are a small number of customers who are affected by exclusions and who are therefore unable to file online or get an accurate Self Assessment income tax liability calculation for 2016-17. Our forecasts suggest that exclusions for 2016-17 will only impact a very small proportion of SA customers (a fraction of 1%).

In this instance customers should:

  • file their Self Assessment by paper return, along with a completed reasonable excuse claim
  • make a reasonable effort to estimate their income tax liability for 2016-17 based on the information they have
  • pay their estimated balance for 2016-17 Self Assessment and make their first payment for 2017-18 by 31st January 2018

Should their income tax liability calculation for 2016-17 be too low, or the deadline of 31 January be missed because of an exclusion, HMRC will not apply late filing, late payment penalties and/or interest. Where we have been unable to stop the automatic issue of these we will accept being affected by an exclusion as a reasonable excuse and the penalties will be withdrawn. From February 2018 we will contact those customers who have needed to estimate their balance payment to confirm their actual income tax liability.

Where a customer is uncertain if their circumstances match an exclusion and their software allows successful online submission, they should:

  • still file their Self Assessment return online
  • pay their estimated balance for 2016-17 Self Assessment and make their first payment for 2017-18 by 31st January 2018

HMRC will subsequently:

  • identify any cases filed online where the calculation is incorrect
  • make any required correction to the income tax liability calculation for 2016-17 and 2017-18 payment on account
  • inform the customer of the correct income tax liability calculation for 2016-17 and any revision to 2017-18 payment on account
  • advise when the revised amounts need to be paid
  • inform customers that they will not have to pay late payment penalties and/or interest attributable to any additional amount arising from the correction if it is paid before the revised due date

Attached is the v9.0 of the Exclusions for 2016-17 which will provide all the known exclusions to date. Please note that this is for guidance only to give certainty and advise customers if they fall under an exclusion. As mentioned above, customers are advised to file online and HMRC will make the required correction to their income tax liability calculation for 2016-17 and 2017-18 payment on account.

For further information please ask your customers to speak to their tax advisor, or use our SA110 notes and SA150 How to fill in your tax return. Customers can also contact HMRC if they receive any penalties or accrue interest due to exclusions.

We are aware that some of these issues will impact 2017-18 and we are currently devising a strategy to address these.”

2016-2017 Update

HMRC issued the following update to software developers in November 2018:

Self Assessment 2016/17 – Recovery Exercise

Background

Inaccurate SA302 calculations were issued for 2016/17 for some Self Assessment customers affected by exclusions. In all, 22 different exclusions were impacted and a recovery of these cases is planned to start on 19 November 2018. A list of the exclusions affected are shown later in this update.

Recovery Exercise

We have identified the customers affected and they will receive a new SA302 calculation, together with advice on what they need to do. Customers should receive the new SA302s by the end of November 2018. For this exercise we will not send a copy of the new calculation to agents, instead we will ask customers to inform their agent of any changes. Penalties will not be applied in these cases and interest will not be charged on any new amounts becoming payable, providing they are paid within 28 days of the date on the SA302/Advice note.

Information to help your customers:

  • We apologise if our decision to not issue a copy of the SA302 to agents will cause difficulties. The automation of identifying and correcting customer calculations has been challenging. For this bespoke exercise we had financial and timescale constraints which contributed to the decision to ask customers to inform their agent. This approach has the advantage of including agents where there is no 64-8 agent authority in place.
  • Customers who do not agree with the revised SA302 calculation can appeal to HMRC within 30 days. Further guidance is available at www.gov.uk/tax-appeals
  • We are providing a Customer Service Message in the SA302 advising customers what they need to do. However, if customers contact you for advice please direct them to contact HMRC in the first instance.
Exclusions affected
  • Non-UK resident – Exclusions 57, 67 and 73
  • 57 – We have corrected the tax calculation to include the 7.5% notional tax paid on your UK Dividend income..
  • 67 – We have corrected the tax calculation to include the tax due on trust income.
  • 73 – We have corrected the tax calculation to include the loss relief claimed.

Beneficial Ordering – Exclusions 68, 69, 70, 72, 76, 78, 79, 82, 83 and 85

We have reviewed the customer’s record, reviewing the income and how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer

Dividend Tax Credit, Trust and Lloyds – Exclusions 62 and 75

Where a customer has an accounting period covering two tax years, i.e. before 6 April 2016, any dividend income received will be due tax relief on the portion of income received up to 5 April 2016. We have correct the tax calculation to give the relief due on the apportioned income.

Marriage Allowance Transfer (MAT) – Exclusions 66 and 66A

If the customer is due to pay any income above the basic rate the Marriage Allowance transfer is invalid.

We have reviewed the customer’s record, reviewing the income and how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer. Where they are due to pay any tax at the higher rate, we have removed the Marriage Allowance transfer.

Capital Gains not Calculating – Exclusions 64 and 77

We have corrected your tax calculation to include the tax due on your Capital Gains in the year.

Chargeable Event Gains – Exclusions 74 and 81

We have reviewed your income and re-calculated the Top slicing relief that is due.

In these cases we should include a link to the guidance related to calculating TSR as that the customer/agent can check? When it is updated of course, at present it still shows the calculation method before the NIL rate (SSR, PSA) were brought in.

Pension Lump Sum – Exclusion 87

We have reviewed your income and re-calculated the tax due on your state pension lump sum. The whole of the State pension lump sum is taxable at the highest rate of tax at which the customer is liable. The amount of the lump sum will not alter the rate the customer pays. We do not take into account the lump sum payment when calculating the net adjusted income.”

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