New Dividend Tax Allowance is causing problems for contractors and freelancers submitting self-assessment tax returns online

Are you a freelancer or a contractor working via a Personal Service Company? Are you having difficulties filing your 2016-17 tax return, particularly since the introduction of the new Dividend Tax Allowance? Well, if the research by the Freelancer and Contractor Services Association (FCSA) is to be believed, then you are not alone. The FSA has claimed that since the new dividend tax allowance was implemented, many UK freelancers and contractors have struggled to file their self-assessment tax returns.  

According to the FCSA HM Revenues & Customs’ software is causing difficulties for many freelancers and contractors who work via Personal Service Companies (PSCs) wanting want to submit their 2016-17 self-assessment tax returns online.  The HMRC software, in the opinion of the FCSA, “cannot compute” the way the new dividend tax allowance interacts with other tax allowances. Its greatest fear is that HM Revenues & Customs won’t take action to correct the problem as “it only affects a very small percentage of taxpayers”.

However, even back in 2012-13 HMRC itself estimated that the number of freelancers and contractors operating via PSCs stood at more than a quarter of a million (265,000). Given the growth in this particular sector over the intervening years, that figure is probably significantly higher; so to claim that only small numbers are affected is incongruous at best.

What’s more the FCSA believes that the problem will probably affect considerably more people over the course of the next few months. The FCSA said:

“It isn’t just PSCs who will be affected. The problem will impact on anyone who receives dividend income and wishes to submit their self-assessment tax return online.”

So how significant could the problem be for anyone receiving dividend income who wishes to submit their tax return online? Well, the Office for National Statistics (ONS) has stated that the London Stock Exchange has more than 11.9 per cent of its shares owned by private individuals: many of those will have received dividends in 2016 and will seek to file an online tax return to record this.

Speaking about the Dividend Tax Allowance issue, Julia Kermode, Chief Executive, FCSA, said:

“Once again the UK’s smallest businesses are being hindered and it appears that HMRC has no intention of resolving the software issue.”

“It is wholly unfair that individuals and their accountants will have to pick up the cost of this, as HMRC’s failure will lead to an increased amount of admin, time, inconvenience and ultimately cost.”

HMRC has sought to allay fears by advising that anyone affected by the software issue should submit a paper self-assessment return instead. However, if these returns are submitted late, HMRC has warned that any returns submitted late because of software problems must be accompanied by a reasonable excuse claim.

News / Blog

16th
November

The Paradise Papers Leak Sparks Debate About Tax … Again

The Paradise Paper leaks last week have have reignited a public debate again about what is permitted in reducing tax…

8th
November

VAT Threshold Cut Proposed in Latest Report Could Spell Additional Pain for Stockport Small Business

Stockport small businesses face being brought into VAT if the government accepts the Office of Tax Simplification VAT reforms that…

1st
November

Three More Autumn Budget Predictions

Like many in the financial world, we are preparing for first full autumn budget. This week, we are looking at…

1st
November

Using the IHT gift exemptions

As Benjamin Franklin observed in 1789 ‘In this world nothing can be said to be certain, except death and taxes.’…