Clients are being penalised due to software issues with HMRC’s online filing system

Accountants discuss the tax miscalculations – and headaches – being caused by software issues.

HMRC has admitted to teething problems with its new online filing system, with many accountants struggling to file some tax returns. Software provider TaxCalc says the latest problems are due to various introductions of additional allowances and amendments of certain types of income, making calculations of tax treatments and liabilities much more complex.

In response to the growing issues, HMRC published an updated list of exempt returns which cannot be filed online due to software issues and now need to be filed on paper.

Existing tax return exclusions have been in place for a number of years, listed by HMRC as ‘category one’, requiring significant system alternations and improvements. Category 2 exclusions have now been added, which refer to recent teething issues and which are under review by HMRC until solutions can be found. 

Some of the issues include miscalculations of tax treatments and inability to take allowances, relief or additional savings into account. Some taxpayers are therefore either under or overpaying tax as a result. In usual circumstances, the deadline for paper returns is 31 October, with the online filing deadline the following year – 31 January. But due to reported issues, the penalty for late paper returns will be waived, provided the reason for late return is made clear on the tax return itself, along with the reference number of the specific exclusion.

Here are some exemptions and exclusions of tax returns that have been experiencing these issues:

• Claim for pre-incorporation losses, with total loss relief claim over £50,000: £50,000 should be excluded from the cap but are restricted instead, impacting calculation of net adjusted income and other allowances.
• Where income falls within higher rate and/or non-savings income is less than personal allowance and starting rate for savings: personal allowance is not allocated in the most beneficial way.
• Non-UK residents where income limit has been reached for High Income Child Benefit Charge (HICBC): HICBC is currently included within non-UK resident tax liability, but it should only include income tax that would otherwise be charged on disregarded income.

We spoke to a few accountants who have experienced issues with online returns to talk about their frustrations with the online system.

Often you don’t find out there have been issues until after returns have been submitted

Jessica Middleton, founder, Middleton Professional Accounts Services (MPASUK)

We use a third-party software for filing self-assessments and it is brilliant. However, the communication between third-party software and HMRC’s systems is severely lacking. Generally, you don’t find out that there are issues until after you have submitted a return to HMRC.

This lack of communication has meant clients who thought they were receiving tax refunds actually have a bill to pay because RTI wasn’t available at the time of filing. One client hadn’t even been taxed correctly through payroll, and this wasn’t picked up until two weeks after filing their self-assessment.

We have had to file three paper returns for one client and the processing time of those returns meant that the client was given a fine. I appreciate that if a system isn’t working properly an alternative needs to be put in place whilst fixing it, but if paper returns are the alternative and they aren’t being processed on time resulting in fines then frankly what is the point?

Processing of paper returns needs to be handled quickly and efficiently to stop clients being penalised. More staff and more training on how to handle individual cases would be an effective solution. Given the software glitches, better real-time communication and departments talking to each are essential to avoid shock bills or multiple recalculations for clients.

Verdict: Improved real-time information and better communication is needed to ensure clients aren’t faced with bill shocks or miscalculations.

HMRC’s lack of resources is creating cash flow concerns for clients

Christina Nawrocki, Managing Partner, Wellers

We deal with a lot of R&D tax credit claims on behalf of our clients and until October, this was largely a paper process because of HMRC software issues.

With the lack of resources at HMRC, we are experiencing significant delays in the process with the minimum turnaround time being six months. Whilst HMRC is now focused on online filing, it still doesn’t have the resources to cope when there are issues.

For our clients, this is understandably very frustrating. On a commercial level, it can be detrimental to their cash flow. The delays mean that some of our clients have struggled to make ends meet in the current financial climate and having to wait 6-12 months for money that is owed to them is only worsening the problem.

These cash flow concerns are also affecting their ability to make recruitment and investment decisions, which could impact the future of their business.

Verdict: Lack of resources means HMRC cannot cope with additional online filing issues, and miscalculations are creating cash flow concerns for clients that could have a long-term impact.

Software issues haven’t caused us major headaches – yet

Alan Broome, MD Acumenica Group LTD

We are aware there have been significant software issues with online filing affecting accountants and agents in the sector. So far we’ve been very fortunate, with only one case that was on the exclusion list, so this hasn’t really been an issue for us. It was a bit of a pain as we had to print and post the tax return rather than file online. But as it was only one case, and it was before the 31 October deadline for paper returns, it didn’t present a major issue.

It would be helpful if HMRC were able to be flexible enough to update their systems when these exclusions come to light and allow software developers to debug whatever the issue with the submission. However we know that HMRC isn’t so flexible, so it would be most helpful if they met us in the middle and allowed the ‘paper’ returns to be uploaded somehow as PDFs or similar.

Verdict: The effect of software problems depends on timing and client needs. It would help if HMRC were more flexible.

Annie Makoff is a freelance journalist and editor.