Received letter querying last year tax return-net/gross help!!

toinfinityandbeyond

Hi,
wondering if someone can help me,
my husband received a letter saying they are looking into his tax return 2008 as he apparently we put net amount in instead of gross in a box somewhere...
he earned £30,876
which includes CIS tax of £6175
we put somewhere which we thought was right £24,701(30876-6175)
and after all his expenses,petrol tools etc were entered it said he was due around £1200 which he received last may.
Now when we did the tax return we did put the gross amount in the box first which showed he owed £480 tax which we called the helpline and they said that didn't sound right so we changed it to net thinking that must be correct as he was then due a rebate which everyone said you get when self employed after expenses????
Really worried its due back now and we don't have it???
Can anyone help please???
Thankyou

minnie123

We need more info to calculate what tax was actually due. Do you know the total of all his expenses that were included on the tax return?

Debt_Free_Chick

Does he have accounts for the business? Or do you just put figures on the tax return?

chriiiiiiiis

Just for reference:

http://www.hmrc.gov.uk/sa/enquiries.htm

http://www.taxaid.org.uk/self_assessment.cfm?secnav=7

Treading_Water

To calculate the tax payable you need to use your gross earnings figure less all expenses less the personal allowance of £5225 to give you the taxable income.
The first £2230 of that is taxed at 10% and the rest at 20%. You then also need to calculate class 4 ni's, this will be at 8% on the taxable income calculated above. If you then deduct the £6175 CIS tax - any difference is your liability/refund.
Not knowing how much expenses were put through it is difficult to know what the tax liability is - but if, as you say, you put the net amount in the gross earnings box then the £1200 rebate was almost certainly incorrect.
Don't panic though! Should you owe them money there are provisions in place to pay by installments, they will charge you interest on amounts outstanding, but compared to most credit cards (for instance) they are very reasonable.

Elaine_Wilson

Unfortunately the calculations are probably correct and you do owe the money.

I looked at the calculations and you seem to have about £2,600 of expenses claimed. Using the (correct) gross figure for turnover this gives a liability of about £480. Using the incorrect net figure gives a repayment of £1,350 according to my calculations. Since there may be other factors affecting the calculation these figures seem about right.

But the helpline should not have told you the underpayment doesn't sound right. It is very easy to have an underpayment when earnings are this high. The problem is the marginal rate of 30% (22% tax and 8% NI). Against this the tax deducted at source is only 20%. So he was underpaying by 10% of a fair chunk of the earnings.

The other side of the coin is that he has overpaid 20% on the £5,225 personal allowance and the £2,600 of expenses. And a bit in the 10% band but that just complicates the calculation.

Make sure that you stress the figures you entered were because of the information given from the helpline and ask for time to pay in instalments. They should be accommodating.

toinfinityandbeyond

Hi,
thanks for all your help. Yes,Elaine that was the right figures,but this is what we don't understand...my husband has a NI bill every few months for around £28 so didn't realise he was supposed to pay more?
Also surely this isn't including personal allowance,expenses etc as we find it hard to think he owes money not vice versa??
Also someone at his job told him you never get anything back the 1st year of self employment so will this change when he does it again in April (or rather pays an accountant this time!!)
Thanks

Debt_Free_Chick

toinfinityandbeyond wrote: »

Hi,
thanks for all your help. Yes,Elaine that was the right figures,but this is what we don't understand...my husband has a NI bill every few months for around £28 so didn't realise he was supposed to pay more?

Those are class 2 NI. In addition, he pays class 4 NI on his profit. As you don't declare profit until the tax return is done, this amount is normally added to any tax you owe.

Also surely this isn't including personal allowance,expenses etc as we find it hard to think he owes money not vice versa?? Also someone at his job told him you never get anything back the 1st year of self employment so will this change when he does it again in April (or rather pays an accountant this time!!)
Thanks

Urban myth or complete misunderstanding. You would only "get anything back" if you had overpaid tax.

smartpicture

If he earned over £30k and had expenses of only £2600, then I would certainly expect you to pay tax. I don't understand why you expected not to, really. I think you'll be okay this time, as already said you will be able to pay in installments anyway. For the future, though, you really need to be putting money aside every month for your future tax/ni payments. It would be worth spending a £100 or so on an accountant to advice you on the level of money you should be putting aside, and advise you on how to do your own returns in the future.

toinfinityandbeyond

yes we will be getting an accountant!! Just never knew tax was 22% always though 20%.Also didn't know about the extra 8% NI. Oh well!!! Thanks for your help.