Rebecca Cave has explained how HMRC will begin to repair the 2016/17 income tax calculations for around 30,000 taxpayers. On the 13th of November, software developers received an email from HMRC’s Software Developers support team giving more detail.

This Email Contained the Following information:

– The “recovery exercise” will begin on 19 November 2018.
A total of 22 different exclusions that affected the calculations have been identified.
– Affected taxpayers should receive a new SA302 by the end of November.
– Copies will not be sent to agents.
– Penalties will not be applied and interest on underpayments will not be charged provided the additional tax is paid within 28 days of the date of the notice (in many cases the taxpayer will have been overcharged and so entitled to a repayment).
– Appeals against the amended SA302 (if appropriate) must be made within 30 days of the date of the notice.

The exclusion cases to be repaired in this recovery exercise have been listed as:

1) Non-UK resident – exclusions 57, 67 and 73:

57 – Relating to the 7.5% notional tax paid on UK Dividend income.
67 – Relating to the tax due on trust income.
73 – Relating to the loss claimed.

2) Beneficial ordering – exclusions 68, 69, 70, 72, 76, 78, 79, 82, 83 and 85:

Relating to how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer.

3) Dividend tax credit, trust and Lloyds – exclusions 62 and 75:

Relating to the tax calculation to give the relief due on apportioned income.

4) Marriage allowance transfer (MAT) – exclusions 66 and 66A.

5) Capital gains not calculating – exclusions 64 and 77.

6) Chargeable event gains – exclusions 74 and 81:

Relating to the top-slicing relief that is due.

7) Pension lump sum – exclusion 87:

Relating to the tax due on your state pension lump sum.

The exclusions that will generate the greatest number of recovery cases are those listed above under beneficial ordering.

Chargeable events

Watch out for chargeable event gains. Exclusion 81 was agreed following my representations to HMRC (and my article last year in Taxation Magazine). But only very recently have HMRC (again at my behest) agreed to remove exclusion 80 and confirm that the HMRC calculation was after all correct.

You may need to check whether your tax return software incorrectly calculated tax because of exclusion 80 and as a result, the client overpaid for 2016/17.