New dividend tax allowance causes filing issues for contractors

28th April 2017 | News

The Freelancer and Contractor Services Association (FCSA) has claimed the implementation of the new dividend tax allowance has resulted in tax filing issues for many UK freelancers and contractors.

With 2016-17 self-assessment tax returns starting to be filed for the first time since HM Revenue & Customs (HMRC) introduced the dividend tax allowance, the FCSA says HMRC software is thwarting freelancers and contractors who work via Personal Service Companies (PSCs) and want to submit online tax returns.

The FCSA believes HMRC software “cannot compute” the way the new dividend tax allowance interacts with other tax allowances and fears HMRC won’t seek to solve the issue as “it only affects a very small percentage of taxpayers”.

Nevertheless, back in 2012-13, HMRC itself estimated the number of freelancers and contractors operating via PSCs was at more than a quarter of a million (265,000) and that figure is likely to be higher than that today.

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.”

The Office for National Statistics (ONS) states that the London Stock Exchange has more than a tenth (11.9%) of its shares owned by private individuals, many of whom will have received dividends in 2016 and will seek to file an online tax return to record it.

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 already advised anyone affected by the software issue to submit a paper self-assessment return instead. However, if it is submitted late, the tax authority warns this must be accompanied by a reasonable excuse claim regarding the software problem.

If you want to better understand your tax picture for the 2016-17 tax year, your local TaxAssist Accountant can help organise your tax affairs and suggest savings, wherever possible. To arrange an initial consultation, simply call 0800 0523 555 or drop us a line using our online enquiry form.