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HMRC 2016/17 Tax Return Errors – Fix on 23 October – More Problems for Advisers
16/10/2017, by Lee Sharpe, Tax News - General
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Update

HMRC has announced that its fix for several of the errors in its 2016/17 Tax Calculation will take effect from Monday 23 October.

HMRC says that, unfortunately, some “issues” were picked up, that it was unable to fix before 6 April 2017. Which might surprise some, since we were warning about the problems as far back as January 2016! (and in July 2016 - Gov.Fail: Have the New “Allowances” Foiled Even HMRC?. Oh – and in October 2016, with Dividend and Savings Allowances: .Gov.Fail Becomes .Gov.CannotbeTrusted).

But the truly astonishing thing is that, so I am told, a team of tax advisors / tax software writers actually gave HMRC a fully-functioning spreadsheet model, and HMRC still managed to fumble it. Nor were they the only ones.

Let’s not forget that these so-called “Allowances” were announced in the July 2015 Budget, so it’s not as if HMRC has had insufficient time to prepare. Perhaps there would have been less confusion all around if we’d actually called them what they were – targeted nil rate bands, rather than “Allowances” – from the outset.

The in-year fix is for “Exclusions” (errors) 48-56 and 58-59 out of the list at:

Self Assessment Individual Exclusions for online filing - 2016/17

HMRC has promised that it will check through all of the returns previously submitted and to “fix” any that are found to be incorrect, with a letter to the “customer” to advise them of the correction. I suspect that accompanying letter is unlikely to be as candid as agents might like.

What it Means for Tax Agents / Advisers

The great irony here is that at least a few of the tax software houses (one of which, as noted above, had been good enough to hand over its hard-earned work to help HMRC) were fully capable of deriving the correct answer. But in order to get official “recognition” for their software from HMRC, to be allowed to file tax returns online, they had to follow HMRC’s incorrect calculation guidance – even when they knew it to be wrong.

Such is the wonder of the digital era.

I use TaxCalc* for my own very modest compliance activities. TaxCalc issued its own update last week, to adjust for HMRC’s impending changes. However, there was a warning therewith: “it is vital you update your software ahead of HMRC’s changes” because otherwise HMRC’s servers might reject your client’s “old” tax return, if it still has the 'wrong' calculations on it.

It is my understanding that ALL agents will have to update their tax return software in order to be able to file tax returns once HMRC’s systems are updated on 23 October, so as to ensure that formerly-excepted tax returns will now be procesed, rather than rejected. I should not be at all surprised to find that IRMarks also change, at least in some cases, such as where the liability has in fact changed following the software update and algorithm correction.

So, whereas you used to risk being rejected for being wrong when you were actually right, you will now be rejected for following the old instructions. Now that HMRC has decided it wants to be correct.

Not All Softwares are Equal

Note that I said that “at least a few tax software houses were fully capable of deriving the correct answer”. TaxCalc, for example, actually showed the correct answer in its computations but, when appropriate, warned the user that HMRC’s own calculation would disagree due to the aforementioned “exceptions”, and that the tax return would have to be filed on paper (if filed before the new 23 October update).

This seems an eminently sensible approach. Agents pretty much take for granted that their software will calculate basic tax liabilities correctly, and would be loth to contact clients later on, to say that their liabilities were a leetle bit wrong. TaxCalc told me that it had listened to its tax agent clients, who wanted the right answer for their clients above all else.

Unfortunately, not all software houses adopted the sensible approach. I know of at least one very large software company that did absolutely nothing. Nada. Their calculations have thus far been exactly as incorrect as HMRC's with nothing to warn its agent customers of the errors. I have walked away (so to speak) from more than one telephone conversation with its support team wondering how on Earth it has achieved such market share.

Perhaps it had listened to its agent customers and concluded that they didn’t really mind leaving it to HMRC to contact some of those agents’ clients several months down the line, correcting calculations originally provided by their agent. And I got the feeling it certainly wasn’t all that interested in wasting its programmers’ time devising a utility that its agent customers might then run against their own client lists, to identify affected clients. It seems to me that price and market share bear no relation to how good tax software actually is.

Making Tax Digital – The New Normal?

TaxCalc has told me that, so far as the 2016/17 issues are concerned, software houses liaised independently with HMRC, through various channels. They were, nevertheless, able to convince HMRC that it really would be better not to wait until 2017/18 to fix these, ahem, *minor* issues with the tax calculation programme (which is what HMRC had originally proposed). With Making Tax Digital, (MTD), there is more of a forum approach, which will hopefully ensure that feedback is more coherent. Although that is no guarantee it will be considered.

Its representative did warn me, however, that in his opinion, these in-year updates were likely to become “the new normal”, since MTD was effectively operating in real time, and projecting current year liabilities. And with Budgets coming along like London buses…

I cannot wait.

 

 

*To be clear, I pay my licence like any other customer, lest this come across as some tedious infomercial, rather than just another of my tedious articles. It's just nice to be positive about somebody, every once in a while.

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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