Exclusion 138 (first included in 2022) reveals that the HMRC calculator incorrectly restricts any pre-incorporation trading losses that can be set against income from the company to the greater of £50,000 or 25% of adjusted income.
Apart from increasing the tax charge on the taxpayer’s income for the year this incorrect restriction could also generate an incorrect high income child benefit charge.
My example (for 2022-23) would be:
Employment income £12,000
S86 loss £70,000
Child benefit (four children) say £3,250
I make the tax payable £3,100.13 whereas HMRC make it £13,032.62 (albeit with £20,000 loss carried forward).
Exclusion 139 (first included in 2022) reveals a bizarre error in the HMRC calculator. My example would simply be £149,000 of employment income and a chargeable event gain of £1,000. HMRC correctly identify that £500 of the chargeable event gain is covered by the personal savings allowance but then incorrectly tax the remaining £500 at 45% instead of 40%. The resultant overcharge is £25.
The 2021-22 Exclusion 140 was far more interesting. HMRC have at long last conceded that (following the judgments in Silver and Judges), and taking into account the changes in the legislation enacted in Finance Act 2020, both the savings rate band (£5,000) and the personal savings allowance (£1,000/£500) are to be recalculated in the “slice” calculation when determining top slicing relief on a chargeable event gain. Accordingly exclusion 140 has been removed for 2022-23.
However it appears that new errors have crept into the HMRC calculation of top slicing relief (and not yet been identified by HMRC). In particular it looks as though HMRC are sometimes giving too much TSR by allocating the PSA to chargeable event gains before instead of after allocating to interest.
It is vital that all TSR calculations are reviewed going back to 2019-20. The deadline for submitting an overpayment relief claim for that year is 5 April 2024.
There will almost certainly be further exclusions added to the list as we progress through the 2023 return filing season. For example:
Employment income £85,000
Loss relief (not restricted - eg overlap relief) £120,000
I make the tax payable £17,739 whereas HMRC make if £18,800 (overcharing the taxpayer by £1,061).
The discovery of these errors undermines any increased confidence that we might have had in HMRC’s calculator.
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Clearly the Taxpert tax calculator 2023 is even more essential than ever!