Changes to tax law for the year ended 5 April 2017, especially those regarding the taxation of dividends and bank interest, are creating some very complex practicalities. HMRC’s own computers are unable to fully deal with the changes, so much so that thousands of taxpayers’ correct computations have been incorrectly amended by HMRC’s computers systems.
Originally HMRC said they would take no steps to amend their systems this year, but after it became clear how widespread and labour-intensive the developing problem was, the department has now announced that on 23 October it will be issuing a fix to correct some, but not all, many of the errors.
The deadline for paper filing is 31 October, but HMRC will accept paper filing after 31 October for affected cases. However, to avoid a late filing penalty an appeal form explaining the issue needs to be attached to the return. This creates extra work firstly confirming that the e-filing failure is indeed due to the HMRC issues, then preparing the appeal.
Agents also have to explain the position to their clients, obtain a hard-copy signed return, and post it to HMRC with a suitable covering letter. The onus is then on HMRC to correctly process the appeal form.
Our major concern is that where a computer filing difficulty is discovered late in January, as a hard-copy signature, rather than an email is required for paper filing, there may not be time to arrange this and submit the paper form before the 31 January e-filing deadline.
We hope HMRC will adopt a reasonable common-sense approach in these circumstances. If HMRC does not accept the return as a failed e-filing (ie rejecting the taxpayer's reasonable excuse claim), but instead treats it as a late paper filing, it could be regarded as submitted over three months after the 31 October deadline, with potential penalties of up to £1,300. Of course, appeals can be lodged, but that entails yet more time and costs for taxpayers.
Given that HMRC’s computers are struggling to cope with some of their own computations, we are again concerned about the rush into Making Tax Digital, which is of course a much more complex and far reaching project.