Self employed tax maths confusion!

ellissa

Hi all, this is probably so simple but numbers scare the living daylights out of me and I just don't understand this tax issue!

My partner was new to being self employed in 2007. We've just done his 2nd tax return and I don't get the calculations, can anyone shed any light please?

In Jan 2009, he filed the tax return for 07/08 tax year and was given the following calculation (his first ever self employed tax year):-

Total income tax due: 876.18
07/08 balancing payment due by 31/1/09: 876.18
1st payment on account for 07/08 due 31/1/09: 438.09
2nd payment on acc due 31/7/09: 438.09
Total due by 31/1/09: 1314.27

SO... we've paid £1314.27 and have to pay £438.09 by end of July.

THEN... we got calculation for 08/09 tax yr:
Total income tax due: 446.05
08/09 balancing payment due by 1/1/10: 446.05
1st payment on account for 08/09 due 31/7/10: 0
2nd payment on acc due 31/7/10: 0
Total due by 31/1/10: 446.05

SO... if we pay the 438 from the 07/08 tax rtn, do we still have to pay the Jan 10 payment of 446 from the 08/09 rtn? What I mean is, has the 08/09 rtn taken into account that we will be paying 438 in july?

ALSO... how come in the 07/08 rtn the total tax due was 876 yet we paid 1314 in jan and still have another 438 due july? Is this not an overpayment of 876?

Please help... we don't geddit!

Thanks in anticipation
Ells

buglawton

All I know is, self employed tax system changed a while back. You are now expected to pay as you go and not in arrears, based on 'predicted income' which is calculated from previous year. So about 6 months into this tax year, you have to pay a 50% instalment on the end of tax year (estimated) tax bill.

Any adjustments/refunds should the business cease are done later.

Tarasam

Ok....

Have you receivd a statement of a calc?

If its a statement then it'll be as follows:

all you need to pay is your Bal Payt due 31.01.10 of 446.05. The paymt that was due in July 09 was an estimate of you liability for 08/09. As you've submitted your return already you now know you actual liability rather than an estimated.

You'll not need to make any paymts on account for 09/10 as your tax liability for 08/09 was under £1000 (new paymt on account trigger figure)

If it was a calc (and it sounds like it was) then you'll only need to pay the difference between your paymt on account paid 31.01.09 of 438.09 and the liability of 446.05 by 31.01.10.

mrkbrrws

It seems impossible to answer from what you have given, what exactly are you referring to as calculations and where did they come from?

Total income tax due: 446.05
08/09 balancing payment due by 1/1/10: 446.05

One of these figures must be wrong as the balancing payment is the tax due minus what you have paid on account.

Do you know the actual tax due for 2008/09? (ignoring when it might be payable)

ellissa

I've just given you exactly what it says on the calculation generated on completion of self assessment online. I've double checked and have entered EXACTLY as is on the calculation.

mrkbrrws - figures wrong? - that's what I'm saying, it makes no sense to me. The 07/08 calc said tax due 876 yet we've paid 1314 and will pay a further 438 in july for that tax yr.
08/09 calc says tax due 446

Thanks for everyone's comments/advise
Ells x

English_Bob

ellissa,
first port of call is to ring the inland revenue. they will be able to clear this up for you and explain it all in one simple phone call. if you still don't understand then ask them to write to you explaining it. (the inland revenue are actually nice people who are willing to help)

as for the actual calculations it looks like they have worked your tax out for 07/08 inthe normal way (and you paid it), they then have asked you to pay for 08/09 in the 2 installments, which you need to pay. they then have got your figures fr 08/09 and seen that you owe less tax and sent you the calculation. i suspect that they have got it wrong somewhere and sent you 2 statements instead of combining them. if so you should ask them to let you know IN WRITING, what they are expecting you to pay.
You should have an idea of how much you have earned and then you should be able to work out how much you owe (this is a good idea anyway).

My advice ...... ring them. (and always get them to send you a letter confirming the outcome of the phone call) Don't be frightened of them, they are not there to steal money from you, they will want ot get it right just as much as you.
Hope you're in line for a rebate!

Bob

Money_Grabber13579

jimmo wrote: »

I think you may be getting the years mixed up a bit.
When he filled in the 2007/08 Return in January 2009 he should have been told
Tax due for 2007/08 £876.18 due by 31/1/09
1st payment on account for 08/09 due 31/1/09 £438.09
2nd payment on account for 08/09 due 31/7/09 £438.09
As the total tax due for 08/09 is now £446.05 and you have already paid £438.09 you now only owe £7.96 to meet the final full liability.
So if you pay the £7.96 by 31/7/09 there will be nothing to pay in Jan 2010.

They won't collect this 7.96 if this figure is indeed right.

English_Bob

that may be correct, but if she only pays £7.96 and it utrns out that the inland revenue were expecting the payment in July to be £438.09, she may be facing a fine plus interest. I don't know what the outcome will be, but i know who does ...
Her Majesty's Inland Revenue and Customs.

Money_Grabber13579

ellissa wrote: »

Hi all, this is probably so simple but numbers scare the living daylights out of me and I just don't understand this tax issue!

My partner was new to being self employed in 2007. We've just done his 2nd tax return and I don't get the calculations, can anyone shed any light please?

In Jan 2009, he filed the tax return for 07/08 tax year and was given the following calculation (his first ever self employed tax year):-

Total income tax due: 876.18
07/08 balancing payment due by 31/1/09: 876.18
1st payment on account for 07/08 due 31/1/09: 438.09
2nd payment on acc due 31/7/09: 438.09
Total due by 31/1/09: 1314.27

SO... we've paid £1314.27 and have to pay £438.09 by end of July.

THEN... we got calculation for 08/09 tax yr:
Total income tax due: 446.05
08/09 balancing payment due by 1/1/10: 446.05
1st payment on account for 08/09 due 31/7/10: 0
2nd payment on acc due 31/7/10: 0
Total due by 31/1/10: 446.05

SO... if we pay the 438 from the 07/08 tax rtn, do we still have to pay the Jan 10 payment of 446 from the 08/09 rtn? What I mean is, has the 08/09 rtn taken into account that we will be paying 438 in july?

ALSO... how come in the 07/08 rtn the total tax due was 876 yet we paid 1314 in jan and still have another 438 due july? Is this not an overpayment of 876?

Please help... we don't geddit!

Thanks in anticipation
Ells

The only thing I think is wrong is the dates. For example the 07/08 year, the payments on account will be for the 08/09 year.

The way I see it is that your total tax liability for 08/09 is 1322.23. However you have already made 2 payments on account for this year. Therefore, this leaves you with a total tax liability of 446.05. There won't be any payments on account because you are below the limit for paying them.

The payments on account are half the last years tax bill. For the 07/08 year, the total tax liability would have been 876.18 + 2 payments on account which are unknown.

There is definitely something wrong with your dates because those payments on account should be payable a year earlier than you have stated. i.e. this is what I believe it should look like:

Total income tax due: 876.18
07/08 balancing payment due by 31/1/09: 876.18
1st payment on account for 07/08 due 31/1/08: 438.09
2nd payment on acc due 31/7/08: 438.09
Total due by 31/1/09: 1314.27

SO... we've paid £1314.27 and have to pay £438.09 by end of July.

THEN... we got calculation for 08/09 tax yr:
Total income tax due: 446.05
08/09 balancing payment due by 1/1/10: 446.05
1st payment on account for 08/09 due 31/7/09: 0
2nd payment on acc due 31/7/09: 0
Total due by 31/1/10: 446.05

Therefore it would seem to me, that all you need to pay is the 446.05 by the end of Jan next year.

sloughflint

[FONT=&quot]
I've taken a quick look at some old SA calculations.

The general pattern seems to be two payments times (Jan and July).
Whilst the total amount for a particular tax year has to be completely settled by the following January, payments tend to be made towards it the previous January and July based on estimates from the previous year's calculation and then final readjustments in the next January payment to balance up.
Applying that to this case, that would be:

07/08 liability due by Jan 09 in full as no previous payments made.
08/09 liability split in two using estimate from 07/08 calculation payable in Jan 09 and Jul 09.

So your payment in January 09 would consist of all of the 07/08 liability and estimate of half that is due for 08/09. That tallies with what you've got ( if we change 07/08 to read 08/09 for the £ 438.09 bits) and paid.
So far so good.

[/FONT][FONT=&quot]Readjustments would then be made after the calculation was completed for 08/09.
Here your liability has substantially decreased. [/FONT]You have already paid £ 438.09 towards 08/09 so in actual fact there is only a further £7.96 due for the 08/09 financial year.

This is what I was kind of expecting to see:
0 due in July 09.
Balancing payment due for 08/09 of £7.96 in Jan 10
First payment due for 09/10 in Jan 10 of £ £223.02 ( using estimate from the 08/09 calculation)
Total payment due in Jan 10: £230.98

So who knows?

Definitely give the tax office a call and get it all clarified.

( No idea what's happened to the weird varying text size of the post.Sorry)

sloughflint

Yep, looking at this again I think it's a combination of things.

1.There definitely appears to be some sort of confusion with the dates.

ellissa wrote: »

THEN... we got calculation for 08/09 tax yr:
Total income tax due: 446.05
08/09 balancing payment due by 1/1/10: 446.05 should be 31/01/10
1st payment on account for 08/09 due 31/7/10: 0 should be 31/1/09
2nd payment on acc due 31/7/10: 0 should be 31/7/09
Total due by 31/1/10: 446.05

2. But also the pattern doesn't look right to me. I still hope you'll find that the January 2010 amount will be less.
I think you should only be paying the first half of 09/10 liability in Jan 10 with the balancing amount for 08/09 ( £7.96)