Tax advice - end of self employment

WatlingA5

I was working on a self employed basis for just over two years until July, when I was told I was no longer needed. I've deregistered(?) as self employed as I'm 68 and don't expect to work again. My total earned income for that part of this year was about £7,500, paid gross. Net profit from work last year was £18,370 - there was very little in the way of expenses to claim.

I'm drawing state (£111pw) plus four company pensions, three of them taxed at source. Total (gross, including state) is £14,076. Tax being taken at source from the three pensions came to £1,300 last year. Interest on savings is all paid net of tax.

HMRC are asking for advance payments on this year's bill of £1,372 by the end of January and the same at the end of July (the same as last year - and even then I got a refund!). When I asked about reducing the amount I was told it was up to me to calculate what I thought I should have to pay and was reminded there were penalties if I underestimated.... they are not allowed to help. :rolleyes: If I was a cynic I'd think they just wanted me to pay up and let them use the money until they're ready to give it back

Since this year's self-employed element is well under half of last year's, and there have only been small percentage rises in the pensions, I was thinking of suggesting cutting each payment to the round £1,000, which seems to me to be erring on the side of caution. Perhaps the experts on here could suggest whether - on a "ballpark" basis - I am being too cautious or not cautious enough!

fengirl_2

If your self employment ended this tax year, you wouldnt have to make a payment in advance of next year's tax, so you need to reduce that payment to nil.
Although HMRC cannot advise yuo what to pay on account (because if they got it wrong you coould blame them for any interest charge), there is nothing to stop you asking them to help you calculate this year's libaility and for you to then take a view as to what to pay in January. Alternatively, why not try a local advice agency to help you with the calculations.

zygurat789

You either need to see an accountant or go down to the tax office.
You will need to sort out your income for the years ended 5 April, your information above is too vague, and have proof of all tax deducted ie P60s for each pension.
The date you first started self employment is important, from what you say it could be between 6 April 2007 and July 2007. If this is so the relevant years are
to 5 April 2008, 2009 and 2010. Your self employed income for 2010 is from 5 April 2009 to cessation in July.
You may have a tax liability on your income in the year to 5 April 2010 which would be due jan & july 2011.

WatlingA5

fengirl wrote: »

If your self employment ended this tax year, you wouldnt have to make a payment in advance of next year's tax, so you need to reduce that payment to nil.

Forgive me if I sound pedantic, but by "next year's tax" I assume you mean the tax I'll pay next year for this tax year ?

Although HMRC cannot advise you what to pay on account (because if they got it wrong you could blame them for any interest charge)...

That's a good point and makes sense

...there is nothing to stop you asking them to help you calculate this year's liability and for you to then take a view as to what to pay in January.

That sounds like a good idea. It's the difference between advice and information, which is what I need.

zygurat789 wrote: »

You either need to see an accountant or go down to the tax office....

But I think it will be after Christmas now!

Thanks to you both for your input!

fengirl_2

BY next years tax, I mean the tax which will be due for the year 2010/11, not 2009/10.

Elaine_Wilson

You need to estimate your 2009/10 tax liability so I'll give you a start.

Your gross income looks to be approximately £14,100 pensions and £7,500 self employment. This totals £21,600. I'm going to assume your gross interest is below £1,300 and ignore it as basic rate tax has already been deducted. If it is higher than this then your personal allowance will be reduced so come back with more details.

The personal allowance (subject to the above) should be £9,490 leaving taxable income at around £12,100. At 20% the liability for the year is £2,420 of which about £1,300 will have been deducted from the private pensions.

So you are looking at paying about £1,100 to £1,200 for the year.

If you can afford it I would suggest that making the payments on account £1,000 each would be a good idea. It should be an overestimate so you will not be charged interest. If you get your return filed before the end of July 2010 then that payment can be reduced to the actual balance remaining which will probably be less than £200. Although you are overpaying in January the amount of interest you could have earned on it is going to be negligible.

jennifernil

Could I ask the tax people on here............

Since you may not know now exactly what your income will be for 2009/10, if you ask to reduce your payments on account, pay the one in January, then get unexpected income before April, but calculate the correct final amount and pay in full in July, will you still get charged interest ?

I hope you know what I mean!

Have been on the HMRC website and read it all, seen it is 3% interest etc, but could not find the answer to this.

mrkbrrws

Yes, HMRC will recalculate the first payment on account (due January) to make it half of the actual liability (or the original payment on account based on the prior year, if less).

This will mean if you paid the balance in July, interest will be charged from January to July on the difference between the recalculated payment on account and your actual January payment.

zygurat789

jennifernil wrote: »

Could I ask the tax people on here............

Since you may not know now exactly what your income will be for 2009/10, if you ask to reduce your payments on account, pay the one in January, then get unexpected income before April, but calculate the correct final amount and pay in full in July, will you still get charged interest ?

I hope you know what I mean!

Have been on the HMRC website and read it all, seen it is 3% interest etc, but could not find the answer to this.

Income for 2009/10 will be used to calculate tax payments 31/01/2011 & 31/07/2010.
The payments being made 31/01/2010 & 31/07/2011 are based on income received in the year ended 5 April 2009
Unless of course you're PAYE

jennifernil

This is for my husband, he is retired with company and state pensions, the tax on them is all taken off his company pension (like PAYE). The year he retired, despite informing them, it took them ages to issue a code number to his pension provider. Then of course part of the year he was still working (PAYE on that).

But he also got asked to do some work abroad for his former employers, so that was declared in the return for 2007/08 and all the tax due paid over in January 2009.

Then he also was asked for payments on account for 2008/09 in January and July 2009, each of half the shortfall in 2007/08. About £7500 in total. That was fine as he did continue to do some work and was due more than that as it turned out.

Coming now to the return for 08/09 the shortfall is a further £3000, which will be paid in January 2010. But now for the present year 2009/10 they have added that to the payments on account and want a total of over £10000.

Due to the recession, the work abroad has dried up meantime, but he has now started to receive a small pension from abroad which fluctuates depending on exchange rates so is tricky to calculate.

So his income for the current year looks like being much less than last year. A rough calculation suggests the tax due on the foreign work and pension will be around £3700. The UK income is covered by the PAYE .

He has rung HMRC and requested a reduction based on these figures, and they agreed, but pointed out that the onus is on him to get it right. This would be fine if the pension from abroad was fixed, but it's not a huge amount anyway. The main problem is that between now and 6th April he MIGHT get offered more work. But then again he might not. There is no way of knowing what will happen.

So how is he supposed to make sure he pays the right amount?

As 3% is slightly less than the interest I earn, I suppose we might as well keep the money meantime.

If he pays over any shortfall as soon as we have firm figures, will that be taken into account?

Elaine_Wilson

jennifernil wrote: »

If he pays over any shortfall as soon as we have firm figures, will that be taken into account?

Yes. Think of it like any trade account.

On 31st January an invoice for the first instalment will be added to this account. This will be your estimate. You presumably will pay this in January so the account does not show a balance owing so no interest is due.

In March you realise the estimate was too low and you pay some more. When you submit your return sometime later the account will effectively be rewritten so that the first instalment (charged on 31st January) is increased. The account will show a balance owing from 1st February to whenever in March you paid the extra. So, only about two months interest to pay.