Many of you may have seen the recent press regarding HMRC’s calculation errors when it comes to income tax payable for individuals in 2016/17. It has been reported that HMRC’s systems are having difficulty when it comes to dealing with the new combination of the ‘Savings tax rate’ ‘dividend allowance’ and their interaction with the personal allowance.
The rates and allowances are:
- The ‘savings starting rate’ this provides tax – free savings interest up to £5,000 (depending on other income above the personal allowance).
- The personal savings allowance (which provides £1,000 of tax free savings interest a year for basic rate taxpayers and £500 for higher rate tax payers)
- £5,000 allowance for tax free dividend income (reducing to £2,000 from April 2018)
HMRC have reported the following errors:
- Individuals with savings and non-savings income exceeding the basic rate threshold of £32,000 with the non savings income being between £11,000 and £16,000.
- Where individuals have savings income of more than £500 and income in the additional rate band, but after deducting allowances and deductions or extending the basic rate band, are liable at higher rate, the personal savings allowance of £500 is not allocated.
- Where individuals are an additional rate tax payer and dividend income in excess of the dividend allowance takes up the whole of the basic rate band, the tax calculation pushes the income above the dividend allowance into additional rate band instead of the higher rate band.
The only recommended solution for this is for the tax returns with the above combination of income to be filed on paper. According to HMRC, those that have suffered from this glitch is minimal, nevertheless, it is not this statistic but your own personal circumstances that should be of concern here.
This is not the first reported error to arise from incorrect tax software standards, and it certainly won’t be the last. But id does make it more crucial to file your tax return as soon as possible to enable paper filing if necessary and ensure you pay the right amount of tax.