Paper Forms and On Line Exclusions
Every year there are a number of circumstances in which a taxpayer’s SA tax return will not be accepted by HMRC’s systems as valid, and so it must be submitted in paper form. These circumstances are listed by HMRC as ‘exclusions’ for online filing, see link below.
This year there are more exclusions than usual because the HMRC software has not been written with the flexibility to match the tax law, and as a result a correct tax calculation performed by third party software will be rejected as incorrect by HMRC. Alternatively, if the third-party software has replicated HMRC’s errors, the SA tax return will be accepted but the tax calculation will be incorrect.
The key issue is that tax law allows the personal allowance to be allocated in any way which is beneficial to the taxpayer. Traditionally this allowance has been allocated against income in the order of; non-savings, savings and then dividend, but for 2016/17 that may not be the most advantageous allocation. For example, it may be beneficial to set the personal allowance against dividends first leaving savings income within the saving rate band.
Where the taxpayer’s non-savings/savings/dividend income amounts to less than £11,000 plus savings rate band (£5000), but the taxpayer also has a chargeable event gain. HMRC’s software incorrectly extends the basic rate band by the SSR of £5,000, but that is actually part of the basic rate band.