Tax query??

iamthebananalady

Hia, just wondering if anyone knows if people who are self employed pay the same tax as others? My partner has received her tax bill from her accountant for last year (2011/12) and it is huge… Way over what we were expecting. We have queried it with the accountant who said they’ll have another look, but they pretty much said, they’re sure its right… Don’t know how we’re going to pay it unless we remortgage our flat!!

chrisbur

iamthebananalady wrote: »

Hia, just wondering if anyone knows if people who are self employed pay the same tax as others? My partner has received her tax bill from her accountant for last year (2011/12) and it is huge… Way over what we were expecting. We have queried it with the accountant who said they’ll have another look, but they pretty much said, they’re sure its right… Don’t know how we’re going to pay it unless we remortgage our flat!!

There are slight differances in the NI but tax would be the same.
Best way to get the figures checked is to post details on the cutting tax board. Just a guess but is it possible that the earnings have gone over the point where some tax has to be paid on account for next year?

princessdon

What was their earnings - how much tax did they pay?

iamthebananalady

Hi, thanx for the replies…
From June 2011-March 2012, the “company” made a profit of just over £88k, shes in the partnership with her friend, so that’s split equally between 2, so around £44000 in 10 months. They have 20% tax taken off by the companies they work for, so that would work out at just under £9000 already paid, and they’ve been told they need to pay another £21000 between them, so approx another £10k each… just seems an awful lot to me…!

princessdon

Ok - so they are paid "salaries from the company" not dividends?

They both have PAYE jobs using their Tax Allowance?

pickpocketlocket

iamthebananalady wrote: »

Hi, thanx for the replies…
From June 2011-March 2012, the “company” made a profit of just over £88k, shes in the partnership with her friend, so that’s split equally between 2, so around £44000 in 10 months. They have 20% tax taken off by the companies they work for, so that would work out at just under £9000 already paid, and they’ve been told they need to pay another £21000 between them, so approx another £10k each… just seems an awful lot to me…!

That doesn't make sense - what type of company do they have, and what relationship do they have with the companies they work for? If they are invoicing a company for services provided, it would be very unusual for the company to deduct income/ corporation tax.

iamthebananalady

i know it seems quite unusual, i thought the same thing when i first heard about it, but basically, they are working on building sites (bellways, persimmon, gladedale) as contractors, they invoice the companies for the work done every month, then they receive their payment the following month. Theyre not paid a salary or anything like that, but each of the companies they work for asked if they wanted them to deduct 20% tax (I don’t know if this is usual or not, or maybe just with companies building new houses?!) Obviously this avoids such a massive tax bill at the end of the year, so they decided to go ahead… They have therefore been receiving 80% of their invoice totals…

pickpocketlocket

iamthebananalady wrote: »

i know it seems quite unusual, i thought the same thing when i first heard about it, but basically, they are working on building sites (bellways, persimmon, gladedale) as contractors, they invoice the companies for the work done every month, then they receive their payment the following month. Theyre not paid a salary or anything like that, but each of the companies they work for asked if they wanted them to deduct 20% tax (I don’t know if this is usual or not, or maybe just with companies building new houses?!) Obviously this avoids such a massive tax bill at the end of the year, so they decided to go ahead… They have therefore been receiving 80% of their invoice totals…

That makes more sense - are they CIS sub contractors?

It would be worth reposting on the Cutting Tax board, someone will have more specialised knowledge there.

princessdon

It is very unusual and yes they have paid too much tax.

Even the 21K without the "company deduction" doesn't make sense to me.

Lovelyjoolz

So they are contractors. The 20% the housebuilders are deducting is CIS (Construction Industry Scheme) tax.

Where the company is paid under deduction for work done within the construction industry you should offset the deductions against the company’s monthly or quarterly liabilities for PAYE/National Insurance contributions (NIC's) and any CIS deductions taken from the company’s own subcontractors.
The company should account for all CIS deductions made from its payments and offset against its own liabilities during the tax year, and then on the company’s P35 Employer Annual Return. On receipt of this return at the end of the tax year (5 April) HM Revenue & Customs (HMRC) will repay to the company any balance of deductions that the company was not able to offset during the year. (Source: HMRC website)

Does she receive a salary? Is she paying income tax & NIC through her salary?

Check with the accountant that they have offset the CIS tax deducted against the PAYE/NIC liability.

Ask the accountant for a detailed breakdown of this alleged £21k tax debt

iamthebananalady

thanx very much for the help - i will have a look for the cutting tax board when i get home tonight! not sure what a CIS contractor is tho...??