Tax & NI Interest on a payment plan

Skintski

Good Morning Folks

This is my first post here. I have been reading through the forums and you seem like very knowledgable people so I wonder if I may trouble you for some assistance.

My partner was self employed between April 08 to end of Jan 2010. We have only recently sent in the self assessment forms for these periods (yes I have given him a rap on the knuckles) and we have paid the fine for them being late. The person we spoke to then said there would be no further penalty because the forms were all in place.

I estimate his tax bill to be around £4000 which he will have to pay off in instalments. The person at the payment plan office that he spoke to said that if this was not all paid off in one chunk he may receive more penalties/interest. Unfortunately he did not request more information on those fines.

I have been cruising the HMRC website but I'm no accountant and a lot of it doesn't make sense to me. Can anyone tell me what interest/penalties we can expect to pay if he were to pay it off at £400 per month on a payment plan. Or, is he likely to have to pay the tax back at a higher rate than the usual 8%, or the NI Class 4 back at a higher rate? We already have the Class 2 bill which is in hand. He is genuinely unable to meet the payment in one go and in an effort to pay it off as quickly as possible, £400 is as much as he can go to per month.

He has been in full time employment since 1st Feb 2010 and so has been paying NI and Tax as normal and has no plans to return to being self employed so there will be no tax bill in future.

I hope I've put everything in there necessary, apologies if I have missed anything.
I'd be very grateful for any advice.
Thank you.

jennifernil

Have you read this page and followed the links?.........

http://www.hmrc.gov.uk/payinghmrc/problems/cantpay.htm

You need to ring them for more info I think.

Mikeyorks

Skintski wrote: »

Or, is he likely to have to pay the tax back at a higher rate than the usual 8%,

It's 2.5% interest - not 8%.

The fact there is no continuing liability is helpful and you need to emphasise that when negotiating a payment plan. You would also be better off (both in the real sense and being seen to demonstrate overdue compliance) if you can make a larger initial payment.

But - there is a 5% Surcharge levied 28 days (and again after 6 months) after the due date, which you can avoid if you have a payment plan in place at that point. As the due dates are now in the past - those Surcharges aren't avoidable and add considerably to the total. Getting a payment plan in place asap will avoid further Surcharges ..... but not the continuing interest.

Skintski

Hi both and thanks for your responses.

Yes I have been through the links but I got all confused with the different figures according to different periods.

Sorry when I said 8%, is that not what you pay NIC4 at when self employed and over the allowance you get?

Mikeyorks, when you say those surcharges add considerably, what would you expect them to add to a £4000 bill please along with the 2.5% interest? My maths isn't brilliant. Sorry if that seems a bit daft. Would I be right in thinking that each surcharge would be £200 on the £4000 bill? £4000 includes both Tax and NIC4 so do you just pay surcharges on tax or on both? I'm really confused by all this.

If anyone is willing, maybe I could send a PM over with the numbers in and you can see what numbers you come up with and what surcharges you would expect etc? I'd be really grateful. Presently I'm scared of what might be coming his way.

Thanks again.

Mikeyorks

Skintski wrote: »

Sorry when I said 8%, is that not what you pay NIC4 at when self employed and over the allowance you get? .

Sorry - 8% also applies to the 'statutory level of interest' you get paid on eg some PPI reclaims. And I thought you were getting confused with that. Yes it's 8% for the years in question. Table here (Class 4 near the bottom) :-

http://www.hmrc.gov.uk/rates/nic.htm

Would I be right in thinking that each surcharge would be £200 on the £4000 bill?

No. Because there are 2 years in play? And the 5% Surcharge is added incrementally to the amounts due at 28days and 6 months from the due date. It's also only added to 'balancing' payments and not to payments on account that may be due. As neither I (nor you?) know if POAs (31st Jan and 31st July) were due (2nd year only as it depends on amount due 1st year) then any estimate I might make could be potentially misleading. And I wouldn't want that. It does (the Surcharge) include outstanding Class 4 NI.

http://www.hmrc.gov.uk/manuals/emmanual/EM4104.htm

If you know the split of the £4000 between years (Apr 08 to Jan 10 suggests Apr 08 to 09 has a due date of 31.1.10. And the period Apr 09 to Jan 10 has a due date of 31.1.11) then adding the 5% at 28th Feb and end July for each of the years is fairly straightforward? The real point I was making is that the Surcharge does, I'm afraid, being a lump sum add on much more than the accruing nature of interest.

I would wait for the HMRC calculation. But - they don't usually like doing it that way, but I'd insist ........ I would get the payment plan active. Even if that's before they have the charge on your SA account.

Skintski

Hi Mike

Thank you very much for your help. Following your post last night we called the HMRC again and made sure they set up a payment plan so at least we have something in progress. We'll sit and wait for the figures and then see how we go.

Thanks again for taking the time to reply and with so much detail.