Self Assessment Tax Calculation Issues for 2016/17

HMRC have released a new version of their Self-Assessment Exclusions for individuals. These are a list of scenarios that the HMRC system cannot cope with or will not calculate the correct tax liability for and therefore there is an exclusion in place to allow for these returns to be submitted by post instead of online. 

HMRC have advised us that all Self-Assessment taxpayers need to file their 2016/17 Tax Return, pay their balance and make their first payment on account for 2017/18 by 31 January 2018. 

They have confirmed that a “small number” of taxpayers are affected by the exclusions and therefore unable to file online or get an accurate income tax liability calculation for 2016/17. Their forecasts suggest that the exclusions for 2016/17 will only impact “a very small proportion of SA customers (a fraction of 1%)”.

In these instances taxpayers (or their agents) should:

• File a paper return, along with a completed reasonable excuse claim
• Make a reasonable effort to estimate the income tax liability based on the information they have
• Pay the estimated balance for 2016/17 and make their first payment on account of 2017/18 by 31 January 2018

Should the tax liability calculation for 2016/17 be too low or the deadline of 31 January 2018 be missed because of an exclusion, HMRC will not apply late filing, late payment penalties and/or interest. Automatic issue of these can be cancelled by a reasonable excuse claim. 

From February 2018 HMRC will contact “customers” and their agents where they feel that the tax calculation needs to be corrected to confirm their actual income tax liability. 

If you are uncertain as to whether or not your client’s circumstances match an HMRC exclusion and IRIS allows you to submit your client’s tax return online you should still file the return online, and pay the tax liability due. 

HMRC have stated that they will:

• Identify any cases filed online where the calculation is incorrect
• Make any required correction to the income tax liability 
• Inform the customer of the correct liability 
• Advise when the revised amounts need to be paid
• Inform the customer that they will not have to pay late payment penalties and/or interest attributable to any additional amount arising from the correction if it is paid before the revised due date

In most cases, if your client’s circumstances fall into one of the HMRC Exclusions the IRIS software will warn you and advise that the Return be sent by post. There are some scenarios, only recently highlighted by HMRC that the software will not warn you about, but the Return will be rejected online with a 6492 error. In these circumstances the return should be sent by post accompanied by a reasonable excuse claim.