Self Assessment: why is this figure so high?

FTB-FTW

Hi all

I am trying to figure out how much tax I owe for the year 10-11 and having put in the numbers on HMRC's online service, I am coming out in cold sweats: the figure is substantially more than expected.

I earned exactly 24k in that tax year, and the calculation is coming back with just shy of £7,000. My maths is abysmal, but even I know that this represents far more than 20%.

I have no tax owing from previous years and paid payments on account last year.

My only suspicion is to do with the fact that payments on account already paid are 'not taken into account' - one brief panicked phonecall to a friend suggests that it's possible the final calculation will knock off the few grand I already handed over in payments on account.

so why is it still saying that £7k is due by January?:eek:

I note there is also the option to reduce payments on account and will need to do this anyway as I am about to start a new job on PAYE. But if i do still have to pay the payment on account now, how much should i expect to pay in January? I had budgeted for circa £4k - to pay £7k i would be looking at taking out a loan.

Any wise words? I am having the most awful time over this

ceeforcat

How do you get £7000 - can you give us a breakdown as I calculate your liability at approx. £5000. Can you give us a breakdown?


Relax - even if your tax bill for 2010/11 was £7000 which must be paid by 31st January 2012. The payments that you have made in January 2011 and July 2011 will count towards this. (Not everyone has to make those six monthly payments).

Your payment on account will be £3500 in January 2012 and the same in July 2012. These can be reduced to whatever you request but must cover your eventual total tax bill for 2011/12 tax year after PAYE tax on your new job. If you reduce by too much, you will be liable to interest and, possibly, penalties.

PlutoinCapricorn

I believe that the online system is free standing: it can't access all of your records. That is why you need to give details of PAYE work for example.

So you may well need a statement to see your real position. Did you allow for the 8% Class 4 levy in your calculations?

ceeforcat

Thanks for the 'Thank -you' FTB-FTW but the figure of £7000 suggests a big error somewhere. Post the details and I, or someone, else can attempt to shed some light.

Pluto - I did - still get £5000, or slightly less.

FTB-FTW

Thanks - I don't really know what you mean by a breakdown, but I just added my earnings up and put them into the online form along with pension payments and all the other factors that make a small difference to the overall figure - nothing unusual at all.

Having now spoken to HMRC it seems like there might be a £2k figure I have already paid which would reduce it a bit, but my worry is that I don't really understand what these payments on account are or how much to reduce them by - I will certainly have to reduce them though as the absolute maximum I can possibly stretch to without maxing out my overdraft in Jan is about £4.5k.

I think - and correct me if I'm wrong please - that to work out how much I can reduce them by I need to work out the tax on my self employment this year, which covers just over half a year's earnings as I am going on to PAYE this month. Then get a 20% figure or something?

People like me should not be allowed to freelance

ceeforcat

O.K. when you go to the 'view your calculation section' state:

1) Profit from Self-Employment.
2) How we have worked out your tax - Pay,Pensions, Profit etc - what figure at 20%
3) Class 4 National Insurance contributions - what figure at 8%.

FTB-FTW

OK here goes!

--

Profit from SE: £22,704

How we have worked out your income tax
Your basic rate limit has been increased by £1,200.00 to £38,600.00 for pension payments etc.
This reduces the amount of income charged to higher rates of tax.


Class 4 National Insurance contributions £16,989.00 @ 8% £1,359.12

ceeforcat

NIC spot on - the amount taxed at 20% is? (good bit above NIC)

FTB-FTW

This bit?

Pay, pensions, profit etc £16,229.00 @ 20% £3,245.80

ceeforcat

Again spot on - I think I may have found where you have been going wrong. The total amount due for 2010/11 is £4604.92. The £7000 that you have mentioned includes the paymeunt on account for 2011/12 of 2302.46 which takes it up to £6907.38. Yes?

It is not as bad as that.

The tax and NIC due for 2010/11 by 31st Janury 2012 is, as I have said, £4604.92 less the payments that you made in January and July 2011.

In addition you have to make a payment on account on 31st January 2012 in advance of tax year 2011/12. You have to make a best estimate of what profit you have made from 1st April 2011 to the date that you will cease trading. Try:

Profit estimate less 5000 (2/3 of personal allowances) at 30%.

If profit is estimated at 15000, you should reduce each payment on account to:

15000-5000 at 30% - £3000/2 - £1500.

Best I can do!

Pennywise

I think the £7k will be the tax and NIC added together PLUS half again being your first payment on account for 11/12. That comes to £6,907.38 - is that the £7k figure you started with?

Your actual tax/NIC for 10/11 is £4,604.92 LESS the payments on account you've already made, and the balance is due 31/1/12.

Then it's payments on account for 11/12, £2,302.46 due 31/1/12 and another £2,302.46 due 31/7/12.

So you take off the payments on account already made in Jan and July 11 from the £7k and you have to pay the balance in Jan 12.