HMRC have admitted that the new dividend allowance and the dividend tax makes the personal tax calculation too complicated for the HMRC software programmers to write. But you cannot rely on other software providers as these companies take their instructions from HMRC.
It’s back to paper filing!
HMRC will allow certain tax payers to file on paper with an extended filing deadline of 31 January 2018. As you have to pay your tax by 31 January 2018 you will either have to calculate the tax yourself… quite tricky! Or submit your tax return in enough time for HMRC to manually make the calculation.
Who is affected?
There are three main groups:
- Those with total income made up of savings and non-savings income over £32,000 of which non-savings income is between £11,000 and £16,000; or
- Those with non-dividend income of £27,000 to £32,000 plus dividends which takes their total income to over £145,000; or
- Higher rate taxpayers with interest income of more than £500 but who would be additional rate taxpayers if qualifying deductions were ignored.
How much could the error cost you?
Using a simple example of a taxpayer with salary or pension income of £11,000 and interest of £32,500.
The correct amount of tax is calculated as:
Salary or pension income covered by the personal allowance.
The next £5,000 is covered by the savings starting rate so that only £27,500 of the interest income is taxable. You will also be entitled to the personal savings allowance so a further £1,000 of income is also tax free.
Total tax for this basic rate taxpayer in 2016-17 should be £5,300. HMRC’s software will result in tax of £6,500.
So if you fall into one of these categories please submit your tax return on paper in plenty of time, or if you would like Clearways Accountants to help with your return then get in touch.