HMRC’s own online tax calculator for self assessment is wrong, meaning people could be paying too much tax if they fall into certain income brackets, accountants are warning.
It is the latest criticism that HMRC’s tax systems are too complicated for ordinary people to navigate. Experts say even software developers at HMRC are baffled by the system, thanks to the recent swathe of legislative changes have left HMRC’s creaking online systems struggling to catch up. In seven years alone, the UK’s finance act – which outlines all details of UK taxes, duties, exemptions and reliefs – has swelled from 460 pages to 669 pages, and is set to rise to 776 pages this year, if the Conservative party comes to power again in the general election.
Nimesh Shah, a partner at accountancy firm Blick Rothenberg, said that while the numbers affected are small, it is another case of HMRC not being properly equipped to keep up with changes to legislation. “The UK’s personal tax system has become littered with numerous thresholds, allowances and reliefs, most of which have been politically driven without any consideration given to the adding complexity.”
“It has got to the point where the Government and HMRC are not far from a complete re-write of the tax code,” he added.
Two groups of taxpayers are being overcharged if they file their tax returns online. These are people who earn less than £16,000 a year – for example, from employment earnings, pension or rental income – and who exceed the Personal Savings Allowance, which is £1,000 a year for basic rate taxpayers and £500 a year for higher rate taxpayers. The other group affected is those who have total taxable income of between £27,000 and £32,000 a year, and who also receive enough income in the form of dividends to take them over the additional rate tax threshold of £150,000. ‘Not able to cope’ HMRC itself has admitted that its online systems are not able to cope with these two groups, and advises people who fall in these categories to file paper returns. But Mr Shah said HMRC does not make this clear on its online portal. While its website should alert people who fall into these categories not to file online, this isn’t always the case. He advises people to check their tax position manually in all cases of self-assessment, to make sure their tax bill is accurate. “This is not something you would expect HMRC to get wrong. Some may feel they are forced to hire an accountant to file their return for them, which is more expense. The idea for the online system is to make it simple enough for people to do themselves,” Mr Shah said. The £1,000 “hobby” allowance, the £5,000 dividend allowance, the personal savings allowance are just some of the tax reliefs the government has introduced in the past couple of years. HMRC said it is aware of a problem in its online system in some cases, but that the issues will not be resolved this year. It plans to solve the issues for people filing for the 2017/2018 tax year by January 2019. A spokesman said: “Last year more than 9.5 million customers (93 per cent of the total) did their self assessment return online – the highest ever recorded. No tax has been wrongly paid or assessed. A very small percentage of self assessment taxpayers who have an unusual combination of income types currently have to use paper tax returns. We are constantly improving our online services to make them more comprehensive and user friendly.”
Case study: ‘HMRC is not fit for purpose’
Cheryl Cox, is a PR manager from Leeds
“I worked for Avon for about four months back in 2014, to earn a bit of extra cash to pay to go on holiday. Across the four months I made about £250 in profit, and I did a self assessment tax return for this. I paid the tax (about £30 I think) that HMRC worked out that I owed, and I then assumed that everyone was sorted. Then two months ago I received a letter from a debt collection company saying I owe money to someone. I had no idea what for, so I called them and they revealed it was for HMRC. I went onto my online self assessment account to see if I could find out more. There I discovered £1,300 in penalty charges for not submitting self assessed tax returns between 2015 and 2017. You can imagine my horror. I immediately called HMRC who revealed that even though you have to re-register every year, you also have to de-register. After about an hour of the phone to various people, they eventually agreed that I didn’t owe them any money, and put the balance at £0. Phew. You’d think it was all over, but no, a week later I got a very forceful letter from the debt collection company again about the money they thought I owed. Again, I called them and they again said I would need to speak to HMRC. I would need to get HMRC to send me a letter saying I have a £0 balance, and then share this with the agency. You can imagine my frustration. So, I get back on the phone to HMRC, and after a lot of negotiating they then agree to send me a statement. It takes two weeks to arrive, and when it does, I then have to call the debt collection company and read the letter to them over the phone! Just like HMRC, they couldn’t tell me why they don’t talk to each other. As far as I am aware, everything is now sorted. However, I wouldn’t be surprised if I get another letter from either party demanding money for some ridiculous reason. HMRC is hardly incentivising people to be truthful about extra income, when they make the process so incredibly painful.”
• This article first appeared in our sister title, i