Paying tax (on letting income) through PAYE or Tax Return

jonny2510

To give you a brief overview of my situation. I'm an accidental landlord, and have been letting my old property for around 6 months now. I have no intentions of getting/letting any more property in the future (one's enough!). I informed the tax office recently of this, and they have got in touch asking for income and expenditure for property to determine 2010-2011 profit.

All fine so far, except they have stated in the meantime they have included an estimate of £2000 in my code for 2011-2012. I assume this means they will take the tax from my PAYE income.

I plan to return the details they've asked for ASAP. What I want to know is should I accept this, or request to pay the tax after each tax year (as I'd expected to).

I figure paying by PAYE may be easier for me. I don't currently fill out a tax return - will I need to if I pay my lettings income tax via PAYE?

On the other hand, paying after filling out a tax return allows me to keep the tax portion of my income, save it and earn interest on it until a later date. As this is small amounts (around £4000 income pa before expenses) will it make a difference?

Are there any advantages / disadvantages for either way of paying that I've missed?

00ec25

technically the decison is at the discretion of HMRC and is not of your choice, they will decide if they want you to do a SA tax return based on the info you have now sent to them

strictly speaking if your net profit is <£2,500 then they will collect via your tax code under PAYE. If your net profit is >£2,500 normally they will require a tax return, however I know of cases where sa full tax return is required for a profit of only a few £100 each year

as to which is "better" for you its a matter of choice, there is no right answer, consider:

tax return : This takes a bit of admin time to do but as you know you can control when you pay over the tax due up until the final deadline on 31st Jan each year. I doubt however that the interest you will earn on this money in the meantime is more than a few £, and so represents a very low wage per hour for the time taken filling out the return

tax code adjustment: you "lose" the money every month from your PAYE income. Whilst this may well be painless you would still need to keep detailed accounts of your net profit and ensure any changes are notifed to HMRC each year. Just because you don't do a tax return does not remove your responsibility to self assess your income each year

ceeforcat

I have to disagree with the deduction from your tax code. This means that you are currently paying the tax due on your property income for 2011/12 when it is not, under self assessment, due until January 2013 - nineteen months away. Just my opinion but I would never pay any bill that far in advance.

jonny2510

Thanks for the comments.

After speaking to a few people about it, I think I'm going to go down the tax return route.

I'd rather pay retrospectively, rather than in advance (using what the IR guestimates I'll earn)