HMRC software glitch affects tax returns of UK’s contractors & freelancers

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This is bad news – a glitch in HMRC’s online self-assessment tax calculator is preventing individuals operating through Personal Service Companies (PSCs) from submitting tax returns for FY 2016-17 on the online platform. Besides the flexible workforce, anyone with an unusual combination of incomes is said to have fallen in the same bracket.

According to Financial Times, the reason behind the glitch is the interaction of the new tax-free allowances for dividends and savings and the zero per cent savings rate band. Quite interestingly, this is not the first time that HMRC’s software has landed in a pool of coding issues.

HMRC has always struggled to make changes in the software that are reflective of the prevailing laws in the UK. In HMRC’s defense, this time, the error affects a “very small group of tax payers”, and hence, they are not in a hurry to fix the faulty software!

What’s funny is around 525,000 PSCs in operation have been affected by this software malfunction, not to forget the small businesses and other tax-paying individuals. Did you know that 9.5 million individuals filed tax returns for FY 2015-16 online?

Yes – this is a huge number and the digital aspect of filing taxes showed much promise but that was before the software malfunctioned.

The deadline to submit an online tax for FY 2016-17 may be several months away, but the taxman has clearly advised “anyone affected” to file a tax return on paper. HMRC has said that it will accept paper returns from the affected individuals after October until 31 January next year.

Looking at the current situation – it is only fair to say that the contractors are having a hard time. The off-payroll rules got implemented last month, but the scenario for the flexible workforce is not so bright. There’s no doubt the IR35 legislation has made this community less flexible and more expensive to hire – even though some very recent surveys suggest otherwise.

Having said that – is it right to question the ability and competence of the taxman? What are your thoughts on this?