The online tax filing rollercoaster

Filing tax returns electronically this year could be harder than usual for many taxpayers as a result of the new tax allowances introduced in 2016/17.
HM Revenue & Customs (HMRC) has announced that their software will be unable to calculate the tax correctly in certain cases, precluding electronic filing, making it necessary to file a paper tax return. It is advisable for tax returns to be prepared earlier than normal to allow submission by post.

There are three principal groups of taxpayers who could be adversely affected.
  1. Individuals with a total income made up of savings and non-savings over £32,000, of which the non-savings income is between £11,000 and £16,000.

    HMRC software fails to give the benefit of the savings rate band and hence overcharges taxpayers by up to £1,000.

  2. Taxpayers with non-dividend income of between £27,000 and £32,000 plus dividends which take their total income to over £145,000.

    HMRC software incorrectly deducts the dividend tax allowance of £5,000 from the higher rate (40%) band which then pushes dividends up into the additional rate (of 45%). This error could cost up to £280 if the tax return is filed electronically.

  3. Higher rate taxpayers receiving interest of more than £500 and who would be additional rate taxpayers if qualifying deductions (such as losses or qualifying loan interest) were ignored.

    Taxpayers in this group are entitled to a personal savings allowance of £500, but HMRC’s calculation does not allow this amount. 

HMRC have recently advised they have the go-ahead to develop an automatic in-year fix which will resolve the vast majority of the 2016/17 online filing issues and expect to have this in place by October 2017. In the meantime the following options are available:
  1.  Wait for the in-year fix to be in place before filing online.

  2. Where tax returns have already been filed and the tax calculation is incorrect HMRC will write to taxpayers to notify them of the correct tax calculation once the fix is in place.

  3. File your tax return by paper.

For further information on filing your tax returns online, please contact your usual Buzzacott contact or email

This article was taken from the Autumn 2017 issue of the Private Client team's Quarterly Tax Digest. You can access all the other articles here.

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