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CCH Personal Tax : HMRC Exclusions 2019/20 (JANTAX)

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Article No:000011505
Question
What are the known HMRC exclusions for 2019/20?
Answer
January 2021:

HMRC have issued another update to their list of excluded cases, with three new ones added, 124, 125 & 126.  The whole new document is attached below, the newest entries will be near the end of the document. 

As these have only just been announced, CCH Personal Tax will NOT trap these and you must be aware of them when completing your clients' tax returns.
Summary:
Excl 124 relates to an entry in box FPS68 on the partnership pages.
Excl 125 relates to savings income, chargeable event gains and allocation against allowances.
Excl 126 relates to foreign tax credit relief and gift aid.

November 2020:

HMRC have advised us of two new exclusions for SA100 returns and one new exclusion for SA800 returns.  Please open the attachments below for more details, the newest entries are shown in bold towards the end of the document.

The new SA100 items are around lumps sums and allowances (excl 122), and non-resident taxpayers with large gift aid payments (excl 123). HMRC recommend a paper return.

The SA800 entry is around restricted finance costs on foreign property, because HMRC have not updated their validation on box 2.14 to allow for the 25%/75% split.  HMRC recommend a paper return.

These were received too late to be included in any CCH Personal Tax updates, so please note that if a tax return meets any of these criteria, it will NOT be trapped and is likely to be accepted by HMRC's online system, and then reviewed by them at a later date.

October 2020:

CCH Personal Tax 2020.3 includes the following updates or additions; we are identifying these where possible and have taken the following actions:

 
Exclusion IDDetailsWK Action
105 (Updated)Customers with savings income in the savings starter rate and £0 in the PSA savings nil band and no allowances required by the savings income will not have their MAT_IN retained. The calculator does not consider the savings income in the savings starter rate, that there is £0 in the Personal Savings AllowanceThe formula provided by HMRC appears to give rise to false positives. We therefore show a warning message in the Errors and Exceptions panel advising the return May be caught by Exclusion 105 and to consider submitting a paper return. We recommend checking the return and if the exclusion applies, select Tax Return Other Information > Additional Details > Tick if Excluded Tax Return, tick the box and enter the exclusion number in Exclusion ID The computation has NOT been updated for this exclusion.
110
(Updated)
This relates to Relevant Foreign Income remitted to the UK.
If the Remittance basis applies for foreign dividends in an earlier year and they are remitted to the UK in a later year where the arising basis applies the SA109 Notes advises to include the FOR6 amount in box FOR4. Any savings income that is RFI will also, by default, be entered in box FOR4. There is no Return box to enter the RFI income other than the boxes FOR4, FOR6, FOR11, and FOR13 where the non-RFI income would be entered. Where the 0% Savings Starting Rate and/or Savings nil rate and/or Dividend nil rate apply and there is no other savings income or dividend income taking up the 0% bands the customer will incorrectly have the RFI income taxed at 0%. It will also affect Scottish customers who should have the RFI income taxed at Scottish rates rather than UK savings or dividend rates of tax.

 
This exclusion has NOT been implemented.
We recommend a return is submitted on paper and if the exclusion applies, select Tax Return Other Information > Additional Details > Tick if Excluded Tax Return, tick the box and enter the exclusion number in Exclusion ID

 
113
(Updated)
“Top slicing relief” can reduce tax on a CEG by allowing the bondholder to spread the investment gains over the number of years the bond has been held. It is available to non-taxpayers, starting rate taxpayers, savings nil rate or basic rate taxpayers who, after adding chargeable event gains to their income, become higher rate taxpayers. Customers who have income from the estate of a deceased person at boxes 2 (Total payments from settlor-interested trusts) or box 19 (Non-savings income taxed at non-repayable basic rate) on the SA107
Trust pages will not have their Top Slicing Relief calculated correctly.

 
When attempting to generate an IR Mark a warning message appears advising the return is caught by Exclusion 113 and to consider submitting a paper return.
The computation has NOT been updated for this exclusion.

 
114
(Updated)
Under s59A TMA 1970 customers are required to make Payments on Account when they have been assessed for tax in the preceding year, and they are calculated by reference to ‘a relevant amount’, (usually the amount by which the previous year’s income tax assessed exceeds the amount of any income tax deducted at source). S59A(8) specifies that tax deducted at source includes any credit on dividends as well as income tax deducted or treated as deducted from any income, or PAYE tax deducted at source. Under s399 ITTOIA 2005 non-resident customers who have UK dividend income are treated as having paid UK income tax at the ordinary dividend rate, and so should take their UK dividend income into account when the Payment on Account calculation is done. Currently the calculator does not do thisThe formula provided by HMRC appears to give rise to false positives. We therefore show a warning message in the Errors and Exceptions panel advising the return May be caught by Exclusion 114 and to consider submitting a paper return. We recommend checking the return and if the exclusion applies, select Tax Return Other Information > Additional Details > Tick if Excluded Tax Return, tick the box and enter the exclusion number in Exclusion ID
The computation has NOT been updated for this exclusion.
115
(Updated)
Customers with a total income over £150,000 and non-savings and savings income of less than their allowances, will not have those allowances allocated in the most beneficial way if they also have income requiring entries at AOI4, FOR43, FOR45, TRU2 and TRU19. An example would be an rUK customer with Interest (INC2) £3,250, Property Income (PRO40) £2,750, a UK Life Assurance Gain (AOI4) of £153,000 over 1 year and claiming Qualifying Loan interest payments (AOR5) £6,000. Due to an error in the formula at c5.48 the calculator will currently allocate the £6,000 allowances to the Property Income and Life Gain, thereby incorrectly allowing a reduced notional tax value of £30,000 rather than £30,600, leaving tax due of £22,850 rather than £22,250. When attempting to generate an IR Mark a warning message appears advising the return is caught by Exclusion 115 and to consider submitting a paper return.
The computation has NOT been updated for this exclusion.

 
116
(New)
Top Slicing Relief (TSR) was designed to mitigate the impact of a life insurance policy gain, which accrues over several years but is taxed in one year. This can leave customers subject to a higher rate of tax as a result of that gain being included in their total income. An added consequence of such a gain is that some customers may pay an increased amount of tax because they have lost their entitlement to some or all their Personal Allowance. The calculation for TSR involves calculating the tax liability on an ‘annual equivalent’ of the gain, e.g. 1/10th of a gain held for 10 years. If for the year of the gain the personal allowance is reduced or absent, that reduced personal allowance is retained in the TSR calculation. The new Budget measure announced on 11 March 2020 allows such reduced personal allowances to be recalculated. Although effective from 11 March 2020 it is by concession going to apply to all gains arising in the 2019/20 tax year. The formula provided by HMRC appears to give rise to false positives. We therefore show a warning message in the Errors and Exceptions panel advising the return May be   caught by Exclusion 116 and to consider submitting a paper return. We recommend checking the return and if the exclusion applies, select Tax Return Other Information > Additional Details > Tick if Excluded Tax Return, tick the box and enter the exclusion number in Exclusion ID.
The computation has NOT been updated for this exclusion.
117
(New)
Customers are liable to pay a Pensions Savings Charge if in the tax year they exceed their annual allowance for the maximum that can be saved in their pension pot. The actual amount of the charge is dependent on how much taxable income the individual has and the amount of their pension saving in excess of the annual allowance. The computation calculates the rates of tax that would be charged if their excess pension savings were added to their taxable income. Currently when this calculation is done for a Scottish customer, if they have taxable income above the Intermediate Rate band, they receive the benefit of an additional £2000 at their Basic Rate, and so reducing the unused amount of High Rate band available.
 
The formula provided by HMRC appears to give rise to false positives. We therefore show a warning message in the Errors and Exceptions panel advising the return May be caught by Exclusion 117 and to consider submitting a paper return. We recommend checking the return and if the exclusion applies, select Tax Return Other Information > Additional Details > Tick if Excluded Tax Return, tick the box and enter the exclusion number in Exclusion ID.
The computation has NOT been updated for this exclusion.
118
(New)
A customer wishing to claim Entrepreneurs Relief (ER) enters their gains qualifying for ER at CGT50. This includes Non-resident customers disposing of UK property and reporting and paying their Capital Gains Tax through the Non-resident Capital Gains Tax (NRCGT) service where all or part of the gain qualifies for ER. If they do not need to claim a relief for a gain reported in the ‘Other property, assets and gains’ section and make an entry in CGT20 with a relevant relief code, then the validation warning message will appear – ‘If CGT50 + CGT49 is greater than zero then CGT20 must be present.’
 
When attempting to generate an IR Mark a warning message appears advising the return is caught by Exclusion 118 and to consider submitting a paper return.
This is not a computational based exclusion. Accordingly, changes were NOT required to be made to the computation.

For a suggested workaround click here
119
(New)
A customer wishing to claim Investors’ Relief (IR) will enter their gains qualifying for IR at CGT49. The guidance advises to enter the gain details in the ‘Unlisted shares and securities’ section on the SA108 and include the relief code INV at CGT36. If they do not need to claim a relief for a gain reported in the ‘Other property, assets and gains’ section and make an entry in CGT20 with a relevant claim or election code a validation warning message appears ‘If CGT50 + GCT49 is greater than zero then CGT20 must be present.’
 
When attempting to generate an IR Mark a warning message appears advising the return is caught by Exclusion 119 and to consider submitting a paper return.
This is not a computational based exclusion. Accordingly, changes were NOT required to be made to the computation.
For a suggested workaround click here.
120
(New)
From 6 April 2015 the Capital Gains Tax (CGT) regime was extended to non-UK residents. Prior to then only UK residents and other certain parties, had been subject to CGT. Those non-UK residents with a UK source of income taxable as income tax with either be taxed under the normal rules following the steps at s23 ITA 2007, or under the rules that limit UK income tax liability at s811 ITA 2007 where the limit on the total liability of ‘Amount A’ (tax withheld from disregarded income) is added to ‘Amount B’ (tax calculated on non-disregarded income) and either the s23 or s811 result retained. Further, when any customer resident or non-resident, has CGT to pay, the calculation is based on the amount of the basic rate band available after its use for other taxable income. This is the taxable income following s23 rather than the non-disregarded income per s811. Currently the SA calculator does this for the s23 result but not the s811 – where it uses the non-disregarded income.
 
The formula provided by HMRC appears to give rise to false positives. We therefore show a warning message in the Errors and Exceptions panel advising the return May be caught by Exclusion 120 and to consider submitting a paper return. We recommend checking the return and if the exclusion applies, select Tax Return Other Information > Additional Details > Tick if Excluded Tax Return, tick the box and enter the exclusion number in Exclusion ID.
The computation has NOT been updated for this exclusion.
121
(New)
A customer with income within the higher rate band is affected where their non-savings income is less than their reliefs/allowances, their savings income above the starting rate band, and their dividends income above the dividend allowance. For some customers the calculator is currently setting their allowances against the dividend income where it is more beneficial to set them against the savings income. (Note: This is a very complex and detailed exclusion)
 
The formula provided by HMRC is extremely complex and detailed. Whilst looking into this we were not able to reliably trap this exclusion we have therefore made the decision to not implement this as it gave rise to an excessive number of false positives.
The computation has NOT been updated for this exclusion.
Note re Exclusion 118: HMRC require all disposals qualifying for Entrepreneurs’ Relief to be disclosed as either Other asset or Land and Property.  Where a claim for Entrepreneurs’ Relief is made and the type of disposal is Listed or Unlisted a warning triangle appears.
For the 2020 tax return, HMRC have made changes to the form SA108 and created exclusion 118 as detailed above.  This exclusion appears when there a claim is made for Entrepreneurs’ Relief for Land and property and no other claim is made for other reliefs for Other Assets.
 If a claim is made for Entrepreneurs’ Relief for asset types Listed or Unlisted, when attempting to generate the IR mark in online filing it is shown as being subject to Exclusion 118.   This validation message disappears when the Other asset type is selected.



July 2020:

HMRC have issued an update to their list of exclusions for individuals.  It can be downloaded at the end of this article.  We will be updating CCH Personal Tax in the 2020.3 software release, due out in the autumn.

New exclusions 116-121 have been added by HMRC since April 2020.

April 2020:

The following exclusions have been corrected in the 2019/20 computation by HMRC, so we have removed them from our system:

56
85
96
101
103
104
106

Exclusion 57 has been partially corrected by HMRC for 2019/20 and the only boxes for which the calculation will be incorrect are TRU5, TRU9 & TRU12.
 

Exclusion IDDetailsWK Action
57A non-UK resident is generally liable to UK tax on all their UK income but Section 811 ITA 2007 limits the amount of UK tax they pay on certain types of UK income (referred to as ‘disregarded income’). UK dividend income is disregarded income.
To apply s811 ITA the total tax liability is calculated following the steps at s23 ITA and then the limit on the total liability of 'Amount A' (tax withheld from disregarded income) + 'Amount B' (tax calculated on non-disregarded income) is calculated and the lesser amount is applied.
The calculator correctly allows the tax treated as paid for INC4 dividends from UK companies, INC5 other dividends, AOI13 for Bonus issues of securities and redeemable shares (but not Loan write-offs), FPS70 partnership dividend income, TRU5, TRU9, and TRU12 Trust dividend income for the purposes of the s23 ITA calculation, but it does not allow the tax treated as paid for TRU5, TRU9 and TRU12 Trust dividend income in the s811 ITA calculation per s399 ITTIOA. All the s399 ITA 7.5% tax treated as paid is not included in the calculation for the s23 limit. This affects non-UK resident customers where the introduction of the tax treated as paid to the s811 calculation reduces that existing amount where it is already more beneficial or s811 is now more beneficial than s23.
We now trap this exclusion and the following warning appears on the online filing window:
This return may be excluded from submission by Exclusion 57 – Consider making a paper return.

 
113“Top slicing relief” can reduce tax on a CEG by allowing the holder to spread the investment gains over the number of years the bond has been held. It is available to non-taxpayers, starting rate taxpayers, savings nil rate or basic rate taxpayers who, after adding chargeable event gains to their income, become higher rate taxpayers.
Customers who have income from the estate of a deceased person at boxes 2 (Total payments from settlor interested trusts) or box 19 (Non-savings income taxed at non-repayable basic rate) on the SA107 Trust schedule, will find their Top Slicing Relief is not calculated correctly.
We now trap this exclusion and the following warning appears on the online filing window:
This return may be excluded from submission by Exclusion 113 – Consider making a paper return.
115Customers with a total income over £150,000 and non-savings and savings income of less than their allowances, and if they also have income requiring entries at AOI4, FOR43, FOR45, TRU2 and TRU19 do not have those allowances allocated in the most beneficial way to them. An example would be an rUK customer with Interest (INC2) £3,250, Property Income (PRO40) £2,750, a UK Life Assurance Gain (AOI4) of £153,000 over 1 year, and also claiming Qualifying Loan interest payments (AOR5) £6,000. Due to an error in the formula at c5.48 the calculator will currently allocate the £6,000 allowances to the Property Income and Life Gain, thereby incorrectly allowing a reduced notional tax value of £30,000 rather than £30,600, leaving tax due of £22,850 rather than £22,250.We now trap this exclusion and the following warning appears on the online filing window:
This return may be excluded from submission by Exclusion 115 – Consider making a paper return.

HMRC also released a further Exclusion 114, but due to issues with the formula supplied by HMRC we have not implemented this in the system; the details are as follows:

Exclusion IDDetailsWK Action
114Under s59A TMA 1970 customers are required to make Payments on Account when they have been assessed for tax in the preceding year, and they are calculated by reference to ‘a relevant amount’, which is usually the amount by which the previous year’s income tax assessed exceeds the amount of any income tax deducted at source. S59A(8) then specifies that tax deducted at source includes any credit on dividends as well as income tax deducted or treated as deducted from any income, or PAYE tax deducted at source. Under s399 ITTOIA 2005 non-resident customers with UK dividend income are treated as having paid UK income tax at the ordinary dividend rate; their UK dividend income should be considered when the Payments on Account are calculated. The calculator does not currently do this.The formula provided was giving rise to too many false positives. As a result of this we have not implemented this exclusion. We have contacted HMRC and asked for further clarification. When this is received, we will review and include it in a future release.

In April 2020 HMRC introduced two new Specials which are technically very complex and rather than attempt to code these we have identified workarounds detailed below:

Special  IDDetailsWK Suggested Workaround
36This is identifiable when a non-resident customer is claiming Entrepreneurs' Relief (ER) on a disposal already reported through the Non-Resident Capital Gains Tax service (NRCGT).Treat the actual gain as ‘Other Asset’ and claim Entrepreneurs relief in the usual way. Create a 2nd disposal for an NRCGT item with proceeds of £10. Enter the NRCGT Tax paid against this disposal, enter an adjustment -£1 (minus £1) to counter the CGT charge in box 51. Ensure that the disclosure note is updated to reflect the workaround for Special 36.
37This is identifiable when a customer wishes to make a claim for Investors’ relief (IR) but either •has no ‘Other property, assets and gains’ disposals to report, or •they have ‘Other property etc. gains’ disposals to report and no code entry is needed at CGT20.Enter the gain as is and the claim for Investors’ relief. Add another disposal (type OTHER) with proceeds of £1. Enter a claim for relief (type OTHER) for £1. Ensure that the disclosure note is updated to reflect the workaround for Special 37.
Note: Following ongoing correspondence with HMRC regarding these ‘specials’ HMRC has accepted our arguments and have introduced two new exclusions 118 & 119 as alternatives to these specials. 
 
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