TT260: HM Revenue & Customs Errors on tax calculation 2016/17 Self-Assessment

June 28, 2017
Company Law Update 2

Many of you would have seen the recent press regarding HMRC’s internal system errors in calculating the income tax payable for individuals in 2016/17.  HMRC’s systems are having difficulty dealing with the new combination of the “savings tax rate”, “dividend allowance” and their interaction with the personal allowance (£11,000 for 2016-17 tax-year and £11,500 for 2017/18) and HMRC have confirmed that their system error will not be fixed for 2016-17 tax cycle!

The rates and allowances are:

  1. The “savings starting rate” which provides tax-free savings interest of up to £5,000, (depending upon other income above the personal allowance).
  2. The personal savings allowance (which provides £1,000 of tax-free savings interest a year for basic-rate taxpayers and £500 for higher rate taxpayers); and,
  3. £5,000 allowance for tax-free dividend income (reducing to £2,000 from April 2018).


HMRC have published the following errors:

  1. Individuals with savings and non-savings income exceeding the basic rate threshold of £32,000 with the non-savings income being between £11,000 and £16,000. In this case HMRC’s software does not allocate the savings allowance to the taxpayer which could save up to £1,000 tax.
  2. Where individuals have savings income of more than £500 and income in the additional rate band, but after deducting allowances and deductions or extending the basic rate band, and is liable at Higher rate, the personal savings allowance of £500 is not allocated.
  3. Where individuals are an additional rate tax payer and dividend income in excess of the dividend allowance takes up the whole of the basic rate band, the tax calculation pushes the income above the dividend allowance into additional rate band instead of the higher rate band.


The only solution is for the tax returns with the above combination of income to be filed on paper.  The normal deadline for filing a paper return for the tax year 2016/17 is 31 October 2017, unless an exclusion applies which would permit the filing by 31 January 2018 or later depending on the type of exclusion.  HMRC have added the above scenarios to their exclusions list to enable filing of the paper returns up to 31 January 2018 should any of the above reasons apply. According to HMRC, those suffering from this glitch are far and few, nevertheless, it’s not the statistic but your own personal circumstances that should be of concern here.

Certain software developers claim that the 2016/17 tax return software perform calculation as per HMRC system, or it cannot be approved by HMRC. This certainly does not need to be the case.  Any software house using the HMRC computations would be able to successfully file a return in the excluded scenarios, but the tax due will be overstated. Any software house not using the HMRC computations would suffer mass rejections of returns.

This is not the first error to arise from incorrect tax software standards and it certainly won’t be the last. But it does make it all the more crucial to file your tax return as soon as possible to enable paper filing if necessary and ensure you pay the right amount of tax!

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