In a statement, released yesterday, the trade association for umbrella employers and accountancy providers claimed HMRC’s software cannot compute how the dividend tax allowance interacts with other tax allowances. FCSA also says HMRC is not planning to rectify the problem.

However, FCSA claims that when HMRC was consulting on changes to IR35, it estimated there were 265,000 PSCs in 2012-13. HMRC suggested that this figure was an increase of 65,000 from the previous year, enough to warrant dedicating significant resources into developing legislation specifically to target this growing population. FCSA contends that if HMRC’s figures are correct, and if the PSC population has continued to grow by 65,000 each year, then around 525,000 PSCs were in operation during 2016-17 and will be affected by the software malfunction.

And FCSA added it isn’t just PSCs affected by the changes, with anyone who receives dividend income and wishes to submit their self-assessment tax return online also affected.

FCSA CEO Julia Kermode said it is “wholly unfair” that individuals and their accountants should pick up the cost of HMRC’s failure to resolve their software issue.

“While HMRC claims that this issue only affects a very small percentage of taxpayers, I put it to HMRC that its estimate is inaccurate and we will see a significant impact on PSCs, as well as anyone who received a dividend payment in 2016-17.

“That is not a small number given that ONS indicates some 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. 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.

“It’s an absolute shambles and one cannot help but speculate if the reason that HMRC is unable to resolve the issue is due to a shortage of IT contractors, which has come about since the IR35 changes were imposed earlier this month. Since then, we have learned that many contractors have been released from government projects or simply chosen to leave in pursuit of private sector roles rather than be deemed to be unfairly caught by IR35. I fear we will see more fallout in time!”

In response to FCSA’s claims, an HMRC spokesperson told Recruiter in a statement: “A very small percentage of self-assessment taxpayers who have an unusual combination of income types currently have to use paper tax returns. Last year more than 9.5m people successfully submitted tax returns online.”

Yesterday also saw MPs push through the Finance Bill, including changes to IR35. Kermode said the FCSA is pleased that while proposed changes to dividend tax are not going ahead, it is disappointing that the IR35 legislation is going to be “rushed through” parliament, which “seems to have taken priority over legislative due process”.

“The government has not only ignored the views of stakeholders but also the views of the opposition,” Kermode says.

“Just recently the shadow economic secretary Jonathan Reynolds MP mentioned the IR35 reforms in his speech on the Finance Bill, declaring them ‘a succession of piecemeal changes that risk hurting people unwillingly caught in the net of self-employment, rather than wealthy tax avoiders’.

“We have written to MPs from all parties to urge them not to support this legislation – and the Tories, the party that purports to support the flexible workforce, have simply not listened and are bulldozing through reforms that are already having a significant impact on the public sector. Lessons have to be learned and I hope that the next government takes a more common sense approach in evaluating the impact of complex policies before implementing them.

“The flexible workforce is considerably less flexible now and will be more expensive to hire. We will lose talent and see skills shortages just at a time when we need to take centre stage in the global marketplace.”

• What are your views on this issue? Email us at [email protected] or tweet us below to tell us your thoughts. We will run comments online in a round-up at the end of the week.

Email story to a friend