Official guides that ‘fail’ taxpayers

Parents, pensioners and home buyers are being “failed” by official calculators and guidance issued by H M Revenue & Customs. The tax authority provides dozens of tools on its website to help individuals work out their tax liability. However, Telegraph Money has uncovered several cases where guidance remains months out of date and calculators provide ambiguous or misleading information.

Senior tax experts have said the errors expose the strain HMRC is under in the midst of an enormous cost-cutting programme that will see 170 regional offices replaced by 13 centres across the country.

George Bull of RSM, the accountancy firm, said: “This is an inevitable feature of a tax system that gets more complex every year and an HMRC that is too under-resourced to deal with all the changes.”

Each year the taxman publishes a document laying out errors in its online filing system that mean a tax return can be filed late. For the 2016-17 tax year, there were 77 possible errors.

For taxpayers, the implications of wrongly interpreting tax rules can have serious consequences.

Incorrectly paying the stamp duty surcharge on additional properties, for instance, can result in tens of thousands of pounds of unnecessary tax. Refunds are available where an error can be proved, but applications must be made within three months. payment to get below the £50,000 threshold, meaning they might have to repay some or all of the child benefit received.”

HMRC says the calculator does not need to be updated yet as returns for the current tax year will not be filed for months. But this penalises those trying to make their financial plans now. Pension savers are also at risk of missing out on highly valuable tax relief because of a calculator that can drastically understate users’ annual allowance. Contributing to a pension is one of the most tax-efficient ways of saving for the long term.

The Government encourages the use of pensions by offering tax relief on cash stashed away. The amount of tax relief is based on the saver’s top rate of income tax, so a higher-rate taxpayer effectively pays £60 to make a £100 pension contribution.

There are a range of restrictions on how much you can save, depending on salary and whether or not you have already taken money from a pension.

But most people can save £40,000 a year and £1m over their lifetime (rising to £1.03m this April).

Working out how much you can save in a given year is complicated by a rule that allows unused allowances from the past three tax years to be carried forward.

But those logging on to see how much they can still add to their pensions before the end of this tax year, April 5, are getting confusing results.

Assuming no contributions had been made for the past three years or this tax year, that should give an allowance of £160,000 to use before the deadline.

Yet HMRC’s calculator suggests only £120,000 is available. The problem appears to be that the tool is ignoring allowances relating to the 2014-15 tax year. HMRC said the tool was intended to tell users whether they had a tax charge, not how much they could save.

Steve Webb, of Royal London, the pension firm, said: “When people go to an official website they have a right to expect clear and unambiguous information.

“The HMRC annual allowance calculator fails that test. These are not simple calculations, which is why people go to online calculators in the first place.”

‘HMRC is too underresourced to deal with all the changes each year’

Some home buyers could also find getting information difficult when it comes to the stamp duty surcharge on second properties.

Official guidance on the additional rates, which require those buying another property pay an extra three percentage points, was last updated in November 2016. Last year’s Autumn Statement made key changes to the legislation.

Divorcing couples who have a court order relating to the family home are now largely exempt, and a loophole that allowed married couples to dodge the surcharge was closed. Neither of these changes are reflected in the guidance.

The surcharge can make a huge difference to the overall tax bill. The buyer of a house worth £500,000 would pay £15,000 without the surcharge, but £30,000 with it. Refunds are available for those who overpay, but the buyer must apply within a set deadline.

HMRC said it had updated its stamp duty “manual” to reflect the changes. But a search for “additional stamp duty” on gov.uk turns up the out-of-date guidance.

Nimesh Shah, of Blick Rothenberg, the accountants, said HMRC’s manuals were meant for internal use and for tax professionals, rather than ordinary people.

“The guidance is there for public consumption. It’s meant to be written in an easy-to-read way with specific examples,” he said. “The manuals relate to the technical workings of the HMRC machine.”