Earning less in 2011/12 than I did is 2010/11

PaulS43

Right peeps,

Am sitting down doing the tax return this weekend (for the year April 10 to April 11).

Last year (10/11), I earned roughly the same as the year before (09/10). Namely (appx) 18K. My tax this time last year was around 2K..... HOWEVER

I lost a customer in July of THIS tax year (July 2011) [they went down in the recession] and my projected gross income is thus around £12K for the CURRENT tax year.

As the tax system works on the assumtion I will earn the same as last year, the IR are likely to want another £2K off of me next Tuesday BUT because I have been around £150 a week light, I simply haven't been able to save that £2K.... I only have around £800.

Now, I can't be the only person in the country in this situation (ie likely to earn much less this tax current year than the last {certainly up to now}) so the question I need answering is what do I do when I submit my self assessment and the machine says Thank's Paul - £2 grand, please.

If anyone can explain for me in plain English what I need to do, I'd be grateful. I don't see why I should have to borrow money (and pay interest) to give the govt money it would have to give back to me in 12 months!!!!

InsertWittyName

I'll not preach, but you should really have been saving the tax required as you received the payments. I just stick it in an ISA and then you're pretty much a year in front.

One thing you can do however is to reduce the payments on account (POA) that will be calculated when you fill out your return - you can then take into account your reduced income and will be charged less.

It's important to note that if you reduce the POA and earn more than expected you will also have to pay interest on any additional tax due.

PaulS43

FWIW I pad most (if not all) of 2010 / 2011's tax bil in advance last January! Also FWIW, next year's tax bill (namely what will be due next January) is likely to be less than £500.

Is there some way I can explain this to the inland revenue before they send bailiffs, etc, etc, etc to give me a load of grief over not paying them tax on money I havbe not actually earned !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

InsertWittyName I actually DO save money every week for the tax I am likely to have to pay as the money is earned. Because since July I've not earned that much money, I've not been able to save as much!

Or perhaps someone can explain how I can save the tax due on about £330 a week when one is earning around £180 or so

BoGoF

You were just given the answer - make a claim to reduce your 11/12 POA's to what you think will be due for 11/12. Work out the tax/NI on your projected earnings and divide by 2. That is what you want to reduce them to.

Err on the side of caution though....reduce them too much and interest will be charged if the actual amounts are higher.

barak

PaulS43 wrote: »

.....If anyone can explain for me in plain English what I need to do, I'd be grateful. I don't see why I should have to borrow money (and pay interest) to give the govt money it would have to give back to me in 12 months!!!!

HMRC do explain what you can do -

If you think your payments on account are too high

If you know that your income for the current year will be lower than last year's you can ask to reduce your payments on account. But:
you'll have to pay interest on any extra tax that HMRC later find was due
you might have to pay a penalty if you ask to reduce the payments without taking proper care

You can reduce your payments on account on your tax return and explain why in the 'Additional Information' section. You can also use form SA303 to claim to reduce your payments or to change your earlier claim.

If you realise that you've reduced your payments by too much - perhaps because your income turns out to be higher than you thought - please tell HMRC straight away. You can use form SA303 or ring HMRC on the phone number on your Self Assessment Statement. If you delay you may have to pay interest, additional charges or a penalty.

Go to form SA303 Claim to reduce payments on account

http://www.hmrc.gov.uk/sa/understand-statement.htm#1a

System

When you are submitting your 10/11 tax return online it gives you the opportunity to reduce your 11/12 payments on account, no need to do it on paper.

PaulS43

Right. I submitted my tax return this evening. As expected, they want around £2 grand (it was £2144, actually). but this includes the "in advance on account" payment for the CURRENT tax year.

I did a rough calculation that my GROSS income this year will likely be £12,500 assuming I will continue earning what I do now weekly to the end of March.

£12,500 less £7,500 (the personal allowance for 11/12) means at most £1,000 tax for this year (20% of the £5K). I wrote this in the box and put £500 as an alternate 'on account' figure.... but the system didn't do anything to change what it expects me to pay next week.

So should I ring them and if I do, who should I speak to?

BoGoF

PaulS43 wrote: »

Right. I submitted my tax return this evening. As expected, they want around £2 grand (it was £2144, actually). but this includes the "in advance on account" payment for the CURRENT tax year.

I did a rough calculation that my GROSS income this year will likely be £12,500 assuming I will continue earning what I do now weekly to the end of March.

£12,500 less £7,500 (the personal allowance for 11/12) means at most £1,000 tax for this year (20% of the £5K). I wrote this in the box and put £500 as an alternate 'on account' figure.... but the system didn't do anything to change what it expects me to pay next week.

So should I ring them and if I do, who should I speak to?

You have forgotten about Class 4 NIC?

The claim to reduce should be reflected in your online statement of account once your return has been received on HMRC's systems.

PaulS43

Hi there,

I did forget the class 4 bit. but 8% of £5,000 is £400. So that's £1,400 at most (my 11/12 GROSS income before any exences will be £12,500 or so - before I remove telephone, stationery, car, lighting, heating cost, etc, etc, etc). So do I offer to give them £700 now "on account" then work out my tax liabilities for this year at the end of this April and pay the balance in July?