New rules on dividends and savings make HMRC software struggle

HM Revenue and Customs’ (HMRC) software appears to be struggling to keep up with what experts claim to be “horrendously complex” changes to the taxation of dividends and savings income, resulting in errors for thousands of taxpayers in its tax computation software at the end of the 2016-17 tax year.

Experts claim the issues were caused by the interaction of the new tax-free allowances for dividends and savings, along with the zero per cent savings rate band.

HMRC has said it will provide a fix for 2017-18 tax returns, but in the meantime, those affected are asked to submit paper-based returns.

The first group of taxpayers affected were those that didn’t have the zero per cent savings starting rate applied to the first £5,000 of their savings income.

Meanwhile, the second group of taxpayers affected stand to lose up to £280 as the HMRC software incorrectly allocates the £5,000 dividend tax allowance so that too many dividends are taxed at the additional rate of 45p.

Joanne Walker, technical officer, the Chartered Institute of Taxation (CIoT), supported the reasons for publicising these issues before individuals filled out their 2016-17 tax returns.

Ms Walker believes it is “quite surprising” that HMRC had not done more to publicise the issue and asked the tax authority to place a message on the personal tax accounts of all affected taxpayers to make them award of the issue.

An HMRC spokesperson responded by saying no tax had been incorrectly paid or assessed: “A very small percentage of self-assessment taxpayers who have an unusual combination of income types have to use paper tax returns.

“We are constantly improving our online services to make them more comprehensive and user-friendly.

“Last year, more than 9.5m people successfully submitted tax returns online.”

If you want to better understand your tax picture for the 2016-17 tax year, your local TaxAssist Accountant can help organise your tax affairs and suggest savings, wherever possible. To arrange an initial consultation, simply call 01737 420 490 or drop us a line using our online enquiry form.

Last updated: 11th April 2017