Thousands Inconvenienced by HMRC System Issue

HMRC have recently admitted that they’ve been unable to update their software to cope with how the dividend tax allowance interacts with other allowances. They say they’re planning a fix for 2017/18, which means thousands of tax payers will have to submit paper returns for tax year 2016/17.

To put this another way, a high-profile government department have been unable to update their systems to cope with rules they introduced in 2016, while several private software firms have managed to do so. Could this be a sign of a skills shortage in the Public sector? If so, one wonders if the recent changes to IR35 had anything to do with it, and indeed if HMRC are currently taking aim on their other foot.

Confidence in HMRC is further undermined by their attempts to downplay the scale of the issue. HMRC themselves estimated the number of PSCs to be 265,000 in 2012/13, and set to increase by 65,000 per year. This would leave the current number at around 525,000, and this issue doesn’t just affect PSCs; anyone with dividend income is affected. We’re therefore surprised to see HMRC describing this group as “a small number of tax payers”, especially given the resources devoted to developing legislation specifically to target them.

The net result is that everyone involved, including large numbers of accountants and taxpayers, will have to undergo a lengthy and inconvenient process involving additional work and cost. HMRC have offered to extend the deadline for paper returns, but only if each one is accompanied by a “reasonable excuse claim” which strikes us as truly bizarre since HMRC have caused the issue themselves.

One also wonders how, given that they were unable to handle a software update, HMRC will cope with the approaching avalanche of paperwork. If their system can’t check the forms they’ll be using a manual process, with all the inevitable keying errors and filing mistakes. We advise anyone expecting a refund to submit early, and refrain from holding their breath.

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