UPDATED: Don’t file your 2016/17 tax return online: you may overpay your tax. HMRC has made a specification error which is affecting many Self Assessment taxpayers. The error applies to HMRC's own product or third party software.
- The complexities of the interaction of the dividend allowance, the savings starting rate, the personal savings allowance, the personal allowance and the various different tax bands rates have meant that HMRC has made errors in its software specifications this year.
- Some taxpayers will be paying the wrong amount of tax if they use HMRC's software to file their Self Assessment Tax returns. Commercial software is also affected as this uses HMRC's specification.
- HMRC hopes to correct the problem in October 2017.
- There are 11 different exclusions: circumstances where a taxpayer should not file online.
- Taxpayers affected must file a paper return: the deadline for paper filing excluded returns is changed to 31 January 2018.
- The paper filing deadline for taxpayers who are not affected by these problems remains unchanged
- The problem cannot be easily resolved as HMRC first needs to change its specification, send that out to all third-party software companies, and they will then have to programme in a fix to allow electronic filing.
If you are using third-party software, and they have corrected the specification their end, you will be able to print out a paper return and file that with HMRC.
Updates
June 2017: HMRC has updated the list of taxpayers who still cannot file online SA returns.
The main situations affected are where:
- Basic rate band extended incorrectly for gains with life policies
- Savings Starting Rate band not allocated to savings if receiving non-savings/non-dividend income between £1-£16,000
- Basic Rate band extended incorrectly for dividends where the customer is liable at the Additional Rate.
- Basic Rate band extended incorrectly for lump-sum payments.
- Capital Gains Tax.
- Non-residents.
- Farmers and authors averaging.
There are many other instances where online filing is impossible for the 2015/16 tax year, see HMRC online filing exclusions list.
For our examples of the 2016/17 software calculation errors see:
| ID | Situation affected | Problem | Solution |
| 51 | Non-savings income of less than the Personal Allowance (PA) & Savings Starting Rate (SSR) (i.e. up to £16,000) plus savings income not covered by the Personal Savings Allowance (PSA).(i.e. up to £32,000). |
Where the taxpayer has non-savings income less than the PA and SSR (£16000) plus savings income not covered by any PSA they are entitled to, the SSR of £5000 is not being given. Tax cost up to £1,000. |
In these circumstances, a paper return should be filed |
| 52 | Dividend income and liability at higher/additional rate (i.e. higher rate taxpayers with dividend income) |
Some taxpayers who have non-savings/savings/dividend income and their income exceeds the basic rate band (BRB) the calculator is incorrectly reducing the higher rate band (HRB) by the £5000 dividend allowance rather than by the amount of the allowance not used in the BRB. Tax cost up to £280. |
|
| 53 | Lloyds Underwriters who are entitled to tax credits on dividends as their accounting period started before 6/4/16 |
Where the taxpayer is a member of Lloyds Underwriters, they are entitled to dividend tax credit but if they have tax liability, the dividend tax credit is being calculated but not included in the calculation as a credit. Tax cost: the amount of your dividend credit |
|
| 50 | For Chargeable Event Gains (CEG) with tax treated as paid and above the basic rate band (BRB), the BRB is incorrectly extended by the amount of the savings starting rate (SSR) |
Where non-savings/savings/dividend income is less than the Personal Allowance & SSR plus a CEG, the BRB is incorrectly being extended by the SSR of £5000 As the SSR forms part of the BRB, it shouldn’t be increased. Tax saving |
What to do now?
Wait and see:
- If HMRC and software companies create a fix then taxpayers who are affected will be able to file electronically from November on.
- If not, affected taxpayers will have to file paper SA returns this year.
Assistance
Savings income: tax on interest
This guide shows how the allowances and different bands correctly work.
Dividends
If you don't have savings income, this guide takes you through the dividend band and tax rates.
Still stuck?
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