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HMRC not coping with dividend tax changes, says FCSA

The introduction of the dividend tax allowance has caused tax filing problems for some freelancers and contractors according to payroll and accountancy body, the FCSA.

As the first tax returns are being filed since HMRC introduced the dividend tax allowance in 2016, the Freelancer and Contractor Services Association (FCSA) has found that HMRC's software is preventing freelancers and contractors who work through Personal Service Companies (PSCs) from submitting an online tax return.

It says HMRC's software 

"cannot compute" 

how the dividend tax allowance interacts with other tax allowances; it also claims that HMRC has said it won't rectify the problem because 

"it only affects a very small percentage of taxpayers".

However, estimates from HMRC itself put the number of PSCs at 265,000 in 2012-13. And the FCSA says: 

"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."

According to figures from the Office for National Statistics (ONS), 11.9% of shares on the London Stock Exchange are held by individuals, many of whom will have received dividends last year and will plan to submit their tax return online.

HMRC is advising anyone affected to file a paper return, but it warns that if they are submitting a paper return late they must make sure that they accompany it with a reasonable excuse claim.

Julia Kermode, FCSA's chief executive, 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."

Describing it as 

"an absolute shambles", Kermode said: "If HMRC cannot get this simple change to dividend tax to work I would question their ability and competence to implement Making Tax Digital next year."

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