Seriously confusing tax stuff- PAYE

pistachiocat

Hi all,

I really hope someone can offer some advice. I am completely baffled by this whole situation, and really don't know who can help me clear it up...

So, I have worked freelance in the film industry since 2004. I take on short term contracts normally around 3-6 months.

I recently received two letters from the tax office, the first saying I was owed around £100 from 2006/2007, the second saying I owed £800 from the ear 2007/2008. Therefore, they wanted £700 from me. I had subsequent conflicting letters saying they wanted me to make a payment up front/ they would collect the money directly from my future salary.

So, I called the tax office to try to get to the bottom of it. I had three jobs that year.

I was waitressing at a restaurant chain (W) until 22/07/08.
I then started a new film job (M) on 22/06/07- 07/03/08 so there was an overlap of about 6 restaurant shifts- not exactly a high paying job!
I started the next job (Z) on 10/03/08 and it continued beyond April 5th that year.

The guy I spoke to on the number for the tax helpline on the letter couldn't really seem to clear anything up for me. He just kept telling me that since I'd had the job at M for most of the tax year, they were counting my other two jobs that year as second incomes. This really wasn't the case, I only had a few restaurant shifts that overlapped. There was no overlap at all with Z, so no way I should be taxed more on that is there?

So he offered to send me out a letter of employment history. When I received it I realised that W had not processed me as leaving until 07/12/07!!

So my next port of call was to call HR at W and ask them to send me my final pay slips from 22/06 to 22/07 and something in writing to say that although I was still on their payroll, I hadn't actually worked for them since July.

I finally got a call back from HR today and the lady baffled me further by telling me that she had my payslips in front of me and I'd been receiving tax rebates pretty much every week from July 07- Dec 07 when they finally made me a leaver on their system and issued my P45. I was really shocked and confused and asked her why this would have happened but she had no explanation at all.

So, I went online to look at my old statements. Turns out, they had been paying me tax rebates ranging from £20-£70.

Ok, I'm stunned too that I hadn't noticed the money going into my account. All I can see is I was young, just out of uni and my finances were in a complete mess with credit cards, overdrafts and loans galore. Thankfully, I have since seriously sorted all this out.

I just really regret not keeping all my paperwork in order back then.

So, I am so incredibly confused. Why on earth would W have been paying me tax rebates when I wasn't working for them? I can't get any sense out of them or the tax office. And how can I clear up this second job business with the tax office?

Should I go to the CAB with all my paperwork?

Can anyone offer advice? Do you need any further info?

So sorry this is such an essay, thanks so much if you actually got down to the end!

jimmo

To me, the trouble with your post is that you do not understand the logic that HMRC uses. hardly surprising but something you will have to learn if you are going to get a result.
Basically, HMRC works in tax years and, from your post,
You have been employed at chain W from an unspecified date until 22/7/08 but a couple of paragraphs later you say that chain W did not process you as leaving until 7/12/07.
That just doesn't make sense.
Can you clarify?
Looking now at your "freelance " work in the film industry, to me, freelance means self-employed and paid without tax deductions but the entertainment industry has special rules so it would be helpful if you could say whether you were paid in full or had tax deducted.
Coming back to your employment at chain W and the mysterious tax repayments I am pretty confident that I understand what has gone on but really would struggle to explain it to you with my perception of how much you understand about tax.
If you are prepared to take this one step at a time, then with a bit of patience, we can help you through this.

pistachiocat

Sorry that was a typo I worked my last shift there 22/06/07. I stared at the restaurant pre April 6th 2007 so I don't think the start date is relevant is it?

As for my film contracts, they are always PAYE.

I really would like to hear your thoughts if you think you can see what's happened. Thank so much.

jimmo

The basics of Income Tax are that we are all allowed to have a set amount of income tax free each year (the personal allowance) and we pay tax on any income above the personal allowance.
PAYE code numbers apply the same principles on a weekly or monthly basis.
Using the current year as an example the Personal Allowance for 2011/12 is £7,475.
and a PAYE code of 747L allows a person to earn (7475/12) £623 per month tax free.
However PAYE codes normally work on what is called a cumulative basis.
As an example let's assume that you earned £1,000 a month from a single employment for April, May and June.
Month 1
The April PAYE would be straightforward enough.
Earnings £1,000 less tax free amount £623 leaves £377 chargeable to tax at 20% = £75.40
Month 2
For May the cumulative basis comes into effect. The way that works is that your total pay to date in the tax year, £2,000 is now considered and, from that, 2 months' worth of your personal allowance is deducted so the tax free amount is £1,246.
So, Earnings £2,000 less tax free amount £1,246 leaves £754 chargeable to tax at 20% = £150.80.
As you have already paid £75.40 in April the balance due for may is £75.40.
Month 3
Similarly in June you will have
Earnings £3,000 less tax free amount £1,869 leaves £1,131 chargeable to tax at 20% = £226.20.
As you have already paid £150.80 in April and May the balance due for June is £75.40.
Month 4
Now, if you earned no income from this employment in July and your employer continues to operate PAYE you would then have.
Earnings £3,000 less tax free amount (4*623) £2,492 leaves £508 chargeable to tax at 20% = £101.60.
As you have already paid £226.20 in April, May and June you have overpaid and your employer must repay you the balance of £124.60.
Month 5
If you also had no earnings from this employment in August you would then have
Earnings £3,000 less tax free amount (5*623) £3,115 leaves nothing chargeable to tax and you would get a repayment of the remaining £101.60.
I do hope that makes sense Taxmen like me and accountants are very comfortable with this sort of figure work but if it is all new to you, I may not have explained it well enough.
You, however, have a further complication because you, officially at least, had more than one job.
If we now take the example of an individual having a "normal" 9 to 5 job who also has a part time job as a barman in the evenings and at weekends then the usual arrangement is that their personal allowance and normal code of 747L is usually allocated to their full time job. The part time job would then have a code number of 0T.The letters are of no real importance, the important thing is that the part time job has zero allowances and our example would pay 20% tax on every penny earned in the part time job.
In your particular case the principle is the same. One job should have a normal code number of 747L, the other(s) should have code 0T.
There are actually all sorts of possibilities of adjusting code numbers to suit your personal circumstances but as you would have been unaware of them there is no point in going into them now.
To me, the most likely explanation of you problem with HMRC is that both your waitressing employer and your film industry employer operated code numbers which allowed the full personal allowance. The current standard code number is 747L but in 2007/08 it was 522L.
Checking the amount of the underpayment is going to be impossible on a forum unless you are prepared to share the details of all your payslips from all your employers.
One further possibility, you say that HMRC say you underpaid £800 for 2007/08. When did they first notify you of that?
If that was after 5 April 2010 there has to be a possibility of getting the net underpayment of £700 written off under Extra Statutory Concession A 19.
Simply typing "A19" in the "search this forum" box on here will give you lots and lots of hits but, at this stage, I really suggest you concentrate on learning to understand what has gone wrong in your own case first.

Pet50

Good explanation! Found this really useful as we are having hassle with HMRC atm. Might come back to you for advice if that's ok.