cannot understand recent tax bill

sunny2_2

well this is what i cant understand i understand i have been thick & really should have taken notice but unfortunatly i havent & theres nothing i can do about that now this is what i cant understand i do not have that other 8,000 but why would i spend the same amount make pretty much the same amount yet owe somthing so much different ? I am not expert in tax as you can see but having a profit over 16k & then a tax bill for over 4k with another 2 to follow in july seems pretty much

Mikeyorks

sunny2 wrote: »

then a tax bill for over 4k with another 2 to follow in july seems pretty much

As I said in post #8 ......... those figures simply don't add up. You either need to pin your accountant in a corner ...... or post some more precise figures on here. But I think that would need to include what you paid last year .... and confirmation there were no POAs.

sunny2_2

i will do that tomorrow put the whole break down down but i know i def paid 995 last year no poa

Loanranger

"i went in to the office"
Whose office, the accountant's?
If so, did you question the accountant?
What did they say?
This may help untangle the confusion if you can post what the accountant said.

sunny2_2

ok so here it is this is the break down i have received
Earned income
Trade, profession & vocation £16,333
Total earned income £16,333

Total income
Total income earned £16,333
Total income £16,333

Taxable income
£16,333
Less
Personal allowance (£6,475)
Taxable income £9,858

Basic rate band adjustment
Savings starting rate band £2,440
Basic rate band £34,960
Extended basic rate band £37,400

Tax payable
non saving income
Basic rate £9,858 @ 20% £1,971.60

Income after tax allowances & reliefs
Class 4 NIC £10,618.00 @ 8% £849.44
Total class 4 nic £10,618
Total income tax & nic due £2,821.04

Tax paid 2009/2010
Total income £2,821.04
Net tax due (owed) £2,821.04

Payments on account for 2010 / 2011
Total income tax & nic £2821.04

Relevant amount £2,821.04

Income tax due after allowances & reliefs £1, 971.60
Class 4 nic £849.44
£2,821.04 @ 20% £564.21

Net instalments
Income tax due 31st jan £1,410.52, second instalment due 31st july 2011 £1,410.52 Total £2,821.04
Total amount payable due 31st jan £1,410.52, second instalment due 31st july 2011 £1,410.52 Total £2,821.04

Your total payment due on 31st january 2011 £4,231.56

Pennywise

OK, so you don't have £2,150 to pay in July, you have £1,400 which is why there was so much confusion. Now we have the right figures it makes more sense.

In the past, your tax is under £1k so you've not had to make poas - the tax has been due 10 months after the end of the tax year.

Now it's gone over that, to £2.8k, poas come into play to accelerate the payment of tax, so during 2011 you're paying two years of tax to bring you up to date so you no longer get so much time between making profits and paying the tax. Hard, but that's what the tax law requires.

If you're profits, now £16k are so much more than previous years, you need to find out the reason. The usual reason is increasing stock levels, i.e. where you have reinvested profits into stock - buying stock doesn't reduce taxable profits until the stock is sold so in the year, you may have made £16k profit, but drawn £8k and spent the other £8k on increasing stock levels. The other possibility is that in the earlier years you spent money on assets, such as equipment or a van etc which has dragged down the taxable profits for earlier years, but you didn't spend so much on assets in the last year.

You really need to go back to the accountant to ask why the big leap in taxable profits.

If you've not done as well for 10/11 you can reduce the poas down to your actual 10/11 liability - it may be worthwhile to give your current year records to the accountant to get them to do some estimates and projections to try to minimise your poas.

Mikeyorks

The total tax due for the closing year (09-10) is £2821.04. Because the tax due exceeds £1000 ...... you have to make payments on account (50% each of the amount due) against 10-11 on 31/1 and 31/7. These POAs are £1410.52.

So the net effect is you allegedly owe £4231.56 on 31st Jan - followed by £1410.52 on 31st July. The POAs totalling £2821.04 will then be offset against your 10-11 tax liability due 31st Jan 2012.

The only real difference to the figures you posted yesterday is that the 31st July figure is £1410 and not £2150? Otherwise all the above is accurate ........ if the profit figure is correct?

But all of the above very much disagrees with the fact that you paid only £995 last year. Whereas you are paying £2821 this year ..... and you have consistently said that your trading figures you know to be similar? The figure of £995 implies your profit last year was under £10k. Whereas these figures show profit much higher at £16.3k.

Have you resolved that fairly significant inconsistency with the Accountant? As one of you must be wrong.

Could the £16333 be the turnover rather than the profit? That's the only thing I can square with the discrepancy you say exists from last year.

sunny2_2

OK well the info above are the correct figures yesterday was what i thought but knew it wasnt exact. I def only paid £995 tax last year that is also an exact fact if that makes sense, from that information is there somthing i should take up with my accountant ? I am sorry to sound so thick just totally confused & my account is zero help after this i am getting rid & getting someoen else

Mikeyorks

sunny2 wrote: »

is there somthing i should take up with my accountant ?

Yes. You need to understand why you paid £995 in tax and NI last year and are being required to pay £2821 this year. When your day to day knowledge tells you turnover / profit has not increased?

It's really that simple. Although Pennywise has pointed you to a couple of examples where increase in stock / capital outlay may genuinely have had effect without your realising it.

madtrekker

I suspect stock might be the answer. Did the value of your stock increase quite a bit last year compared to the previous year? Unfortunately, you have to pay tax on the stock you own even if it's not yet been sold. So reinvesting your profits in buying new stock still results in a big tax bill!