Use computer software to prepare and file your 2016/17 tax return and you could overpay tax – this is why……

Preparing for your tax return with software

Tax software is supposed to make our lives so much easier. In an ideal world it is there to apply all of HMRC’s rules to the income figures you submit, calculate your tax in a jiffy and make sure you don’t pay a penny more than you should.

Of course, we don’t live in an ideal world – as you may discover if you belong to two specific groups of taxpayers.

If you do belong to one of these groups, using tax return software will likely result in you paying more tax than you should and believe it or not the only way to avoid this seems to be to submit a paper return!

The reason this is happening is because HMRC issues a set of standards that tax software developers need to adhere to in order to calculate the tax due correctly. Unfortunately, the algorithms that should properly apply to these two groups of taxpayers were not included in the most recent set of standards – so even fully “compliant” tax software will make errors in these cases.

So, who are these two groups of taxpayers? In a nutshell they are:

  1. People whose total income comprises savings and non-savings income of £32,000 or more – of which the non-savings income is between £11,000 and £16,000.
  1. People with non-dividend income of between £27,000 and £32,000 but who also receive dividend income that pushes their total income over £145,000. 

People in the first group should benefit from the savings nil rate band of up to £5,000. The portion of their non-savings income not covered by their tax free personal allowance will not use all the savings rate band. HMRC’s software specifications do not take this into account – meaning you could be overcharged up to £1,000.

The scenario is less expensive for the second group. In this case the software specification wrongly subtracts dividend tax allowance from the higher rate band instead of the unused basic rate band – thereby nudging dividends up into the additional rate. This error could cost you up to £280.

So what can you do about it? Simply, to avoid being overcharged in the first place, you’ll need to file your tax return on paper.

If that makes you wonder why you spent money on tax return software or a computer in the first place, we don’t blame you – but in this case, the problem lies at HMRC’s door and not that of the software developers.

For more information contact THP today

If you think you may fall into one of the two affected groups, please get in touch with us today – we’ll be very happy to advise you.