HMRC computer fix for personal tax returns

You may have heard that HMRC computer systems have had major problems correctly processing some 2016/17 self assessment tax returns. Essentially, there have been so many changes to personal tax legislation that HMRC software has struggled to cope.

One key problem area is the introduction of the Savings Allowance and the Dividend Allowance for the 2016/17 tax year. The main complication for HMRC was identifying and remedying scenarios in which it is not beneficial for a taxpayer to allocate personal allowances in the default order of ‘non-savings income, then savings income, then dividend income’. In the new dividend tax regime there are a number of scenarios in which it may pay a taxpayer to reallocate part of the personal allowance to dividends - but HMRC systems were not always picking this up. The commercially provided software that we use as tax agents must follow HMRC specifications (even though some of the specifications may be incorrect), otherwise the returns filed online would be rejected.

Good news

The good news is that HMRC have now taken action to try to fix many of the problems, and amended the specifications for their 2016/17 tax calculator software. Such a late adjustment is unprecedented for HMRC, and the fix should be in place by the time you read this Newsletter. It should then be possible for those taxpayers affected to have their returns filed online as usual.

There will be some situations which will still not be resolved for the 2016/17 tax year but there will be an option for returns to be filed on paper even though the normal deadline for paper returns (31 October 2017) will have passed. We will be able to do this for you if necessary with a covering letter giving various technical details of what HMRC call the relevant ‘exclusion’ category. The extended deadline for such paper returns will be 31 January 2018. Should HMRC systems automatically generate a penalty for late filing, this will also be cancelled.

Please be assured that we are monitoring the situation closely. Should your affairs be affected, we will act to minimise your tax liabilities.