earned extra money- how to declare it

surfcat

hi folks,

last year a few of us worked on a project at work. It took much longer than expected, and at the end of it, we were each given a few hundred quid which was left out of the budget.

However, we were just given a cheque and this was not taxed, nor NIed.

I'm 'keen' to pay the tax due on this, in order to avoid problems. According to the HMRC website, i must contact them within 6 months of the tax year ending, so they can arrange for a change to my tax code.

Has anyone been through such a procedure? Is it a lot of hassle or simple? My wages are usually PAYE but will they get me to fill in a tax return in future?

I would prefer if possible to make a one-off payment as that seems simpler, but how do you word a letter to them? and what about NI?

Can HMRC offer advice over the phone without giving them your details?

much appreciated if anyone can advise,

SC

fengirl_2

First of all, I think this payment should have been subject to PAYE as it seems to have been part of your normal work for your employer. Your employer should have deducted tax and NIC at source in my view. This would be your employer's responsibility and not yours.
However, leaving that aside, all you need to do is to ring your tax office and ask for a self assessment for 07-08 and show the extra payment on there. You can pay the tax due in one lump sum by 31 January 09. You will be stuck in the SA system unless you then inform HMRC that this was a one-off and you dont need to self assess in future years.

mrkbrrws

Firstly are you sure that the receipt wasn't taxed, your employer could have put it through on your normal payslips - look for any additional gross pay or a deduction for an advance. Has you employer told you it hasn't been taxed and did they give a reason?

If you are sure it has not been included, I would write to HMRC explaining the nature of the receipt, the amount, date received and that it is expected to be a one-off.

I would not ask for a Tax Return and just see what HMRC come back with.

surfcat

thanks to you both. The extra money definitely did not go through my pay slip. It just came as a cheque drawn on the account of the people we did the work for. I realise it was my employer's responsibility but the sloppiness of this arrangement well matched the whole project.

tyllwyd

I think you might upset your employer if you start contacting HMRC - what if they suddenly find they have a tax inspector on the doorstep asking questions. If it was me, I'd go back to your employer and say that you aren't happy that this money wasn't taxed, and can you give it back to them so that they can pay you through the books. It probably means a lot less cash in your pocket (and they will have to pay tax on it as well), but if you want to keep things straight I don't see what else you can do.

I'm not even sure that asking to pay through the self-assessment system would be OK, because this wasn't money you earned through self-employment, it was a bonus from your employer.

LittleVoice

If the payment was via a cheque directly from the client rather than your employer, then it seems to me to equate to a tip. This is taxable but not the responsibility of your employer under PAYE.

So contact HMRC and say you have had a one-off payment as a gratuity and then you can pay income tax on that amount.

tyllwyd

I was reading the Sunday Times (31 August) and on page 10 of the Business section there was a Business Doctor article which seems to cover the situation
http://business.timesonline.co.uk/tol/business/entrepreneur/article4640151.ece

" .... the Inland Revenue has rules covering cash payments, vouchers or benefits in kind given to employees by someone other than their employer, writes Chris Lane, partner at Kingston Smith LLP.

Any income-tax liability arising will normally be paid by the employees who receive the award, and the details of such awards need to be entered on the individual’s tax return. A third party must send the details of such awards by the July 6 following the end of the tax year. ...

However, this type of payment will also attract National Insurance contributions (Nics) which have to be paid by the third party and sometimes by the employer at a rate of 12.8%.

If the benefit would attract Class 1 Nics if it were supplied by the employer, it will also apply to this kind of payment by a third party. ... It is the responsibility of the employer ... to report and pay any NICs that are due ... "

Mummy_to_Lily

Could the employer or third party (depending on where the payment originated) have included this on their annual PAYE Settlement agreement return - thus covering all Tax/NI liabilities?

Food for thought......

MarkyMarkD

I agree with M_t_L's point. Quite often employers will pay one-off bonuses like this "tax free", meaning that they pay the tax liability on behalf of the employer.

But given that the money came from a third party, I'm less certain that this is likely to be the case.