Top 40 accountants Bishop Fleming branded a tax office foul up as “Making Tax Diabolical”, after it was revealed that it was grabbing an extra £1,000 from taxpayers in error.

Red-faced officials at HM Revenue & Customs (HMRC) are blaming the blunder on its own complicated rules governing the recently introduced dividends tax.

Due to the way the rules work, HMRC’s computer is unable to correctly compute the tax payable where business owners and pensioners have dividend income.

HMRC has conceded that the dividend tax allowance of £5,000 introduced in 2016 is making the personal tax computation far too complicated to be programmed into its computer.

As a result, commercial software providers have been told by HMRC that their software should not be used to file online if a taxpayer has combinations of particular types of income. Instead a paper return should be filed by an extended deadline of 31 January 2018.

The potential tax overcharge if online filing is used in these cases could be as much as £1,000.

Bishop Fleming’s Head of Tax, Andrew Browne, called the error “astonishing” and “embarrassing for the tax office”.

Mr. Browne commented: “We are just twelve months away from the tax system being digitised, yet HMRC cannot even correctly digitise one aspect and is instead asking for paper returns. It does not bode well for its Making Tax Digital project.”

He claimed that whilst HMRC had it foot hard on the accelerator pedal of its £1.3bn Making Tax Digital juggernaut, there was clearly a problem with the mechanics, and the wheels were coming loose.

The Bishop Fleming partner wondered whether the 21,000 plus pages of tax rules were now finally coming unstuck and it was time for the vehicle to be towed back to the garage for a full service.

Mr. Browne added: “What we need is a simpler, clearer tax system that even a computer can understand”.


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