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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

JULY 2017 - A problem with 2016/17 Tax Returns

Within the tax community it was a well-known fact that an individual’s personal allowance, together with any other deductions which go against his general income (eg. losses), should be offset in a particular sequence in order to generate in the greatest reduction in the taxpayer’s liability to income tax. This sequence was against:

1. non-savings income; then

2. interest; and finally

3. dividends.

However, the introduction of both the personal savings allowance and the dividend tax allowance in Finance Act 2016 has significantly complicated the position for 2016/17 onwards.

As a result, the sequence mentioned above is no longer always true. Different combinations of income can now produce a less tax efficient result if the above sequence is used and given the basic prerequisite that deductions must always be made in the most favourable way for the taxpayer care will need to be taken to ensure this happens.

We have been advised that for two groups of taxpayer, errors with HMRC’s online filing parameters (which all tax software providers must follow), will result in individuals being overcharged by up to £1,000 if their returns are filed online. The only solution for 2016/17 is that paper returns should be submitted as it is not expected that HMRC will have a fix in place until the 2017/18 tax year.

You will be affected by this anomaly if:

  • You have income of over £32,000, made up from savings and non-savings sources of which the non-savings income is between £11,000 and £16,000; and
  • You have non-dividend income of between £27,000 and £32,000 which, together with dividends, takes their total income to more than £145,000.

If you currently prepare your own tax return and you think that you may be affected by this or have any questions, please contact Stephen Oates on 0141 221 2984 or by email to s.oates@frenchduncan.co.uk.