A simpler tax return? The computer says no

“Tax doesn’t have to be taxing” according to HMRC’s advertising campaign.  However, HMRC appear to be finding the 2016/17 tax calculation very taxing indeed!

From April 2016, the government introduced two new allowances into the personal tax system.  A “personal savings allowance” of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers which allows the first respective portions of taxable savings income an individual receives to be tax free, and a £5,000 “dividend allowance” which allows the first £5,000 of taxable dividend income to also be tax free.

Both of these allowances were designed to simplify the tax affairs for many individuals with relatively low levels of savings and dividend income, by effectively removing them from self assessment.

Ironically, the allocation of these new allowances together with the existing personal allowance, have made the 2016/17 personal tax calculation incredibly complicated by inadvertently creating several mathematical quirks in a variety of cases.

Calculating the 2016/17 tax liability for some taxpayers is therefore quite a challenge, and HMRC’s master tax calculation software is unable to cope with some cases.  These cases will not be flagged up by HMRC as their software does not think there is a problem.  Instead, HMRC will incorrectly calculate the excessive tax liability and demand the excessive/incorrect figure from the taxpayer.

If you use HMRC’s website to submit your own tax return, and are therefore relying on HMRC to calculate your tax, this may result in you paying too much tax without you even realising.  We have seen cases in the office where HMRC are demanding up to £1,000 too much tax.

If you have savings or dividend income in excess of the above allowances, we would strongly advise speaking to a tax specialist to ensure you are paying the correct amount of tax.  At Dodd & Co, our tax teams have experience in dealing with these cases and liaising with HMRC to reduce the calculated tax to the correct figure.

If you would like to discuss your tax affairs with one of our team, please contact Simon Kirkbride at our Penrith office on 01768 864466 or Judith Clark at our Carlisle office on 01228 530913.

 

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Oct 16

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