Next Years Tax now, bloody cheek

ludmilla

I've just had my tax return with the calculation that I owe the tax man £2,595.90, but £865.30 of that is half of next years predicted tax. Why are they asking for next years tax now, I haven't earned it yet? I might be dead? Have I misunderstood them or …

any information much appreciated.

Ludmilla

CLAPTON

ludmilla wrote: »

I've just had my tax return with the calculation that I owe the tax man £2,595.90, but £865.30 of that is half of next years predicted tax. Why are they asking for next years tax now, I haven't earned it yet? I might be dead? Have I misunderstood them or …

any information much appreciated.

Ludmilla

presumably you are being asked for payment on account: so they are asking for tax due from 2013-14
so they can reasonably assume you were not dead then.

booksurr

it is not "next year's" tax, it is this years tax for which you have already earned the money and unlike an employee on PAYE who has been paying tax since April 14, you have not yet paid a penny on any of your 14/15 earnings

the payment on account is not a payment in advance, it is a payment in arrears, but even then you get to keep the money for longer than an employee who "loses" their tax money the instant its paid

ludmilla

the actual wording from the accountant is: you are due to pay HMRC £2,595.90 for the 2013-14 year (which includes the first instalmnent on account for the 2014-15 tax year of £865.30).?????

spike2012

Yes that's correct. We are in 2014-2015 now

CLAPTON

ludmilla wrote: »

the actual wording from the accountant is: you are due to pay HMRC £2,595.90 for the 2013-14 year (which includes the first instalmnent on account for the 2014-15 tax year of £865.30).?????

you haven't yet paid a penny in tax for the complete year 2013-14.


that tax is due before end Jan 2015 and you are being asked to pay 865.30
what is the problem?

purdyoaten

ludmilla wrote: »

the actual wording from the accountant is: you are due to pay HMRC £2,595.90 for the 2013-14 year (which includes the first instalment on account for the 2014-15 tax year of £865.30).?????

Let us presume that you make your accounts up to 5th April (or 31st March) . The tax due for most self-employed people for 2013/14 is payable as follows;

Payment on Account due 31st January 2014
plus
payment on account due 31st July 2014
plus
any balance due 31st January 2015.

I say 'most' as some do not have to make those payments, one reason being if your tax for the previous year was less than £1000 - is this you? The payments on account are generally half of the previous years tax bill.

So - you did not make any of the payments on account. That means that you were earning money as far back as April 2013 (right through to March 2014) and haven't paid a bean in tax relevant to this.

It's catch-up time! In January 2015 you pay to settle up for 2013/14 and you owe £1730.60. Yes - you now have to pay tax on money you have earned up to 22 months earlier! This option is not available to those on PAYE!

Not only that - your bill for 2013/14 is over £1000 and you have to make payments on account for 2014/15 in order to stop this anomaly from recurring - each of those is £865.30 - half of £1730.60.

It is unfortunate that the balance due for 2013/14 and the first payment on account for 2014/15 occur on the same day - 31st January 2015 -that is the system. - The only thing that is unfair is the inability of your accountant to fully explain it to you!

ludmilla

this is why when a very stupid bear needs advice she turns to moneysavingexperts. I now understand that through the next year i will be paying by instalments last years tax - or am I being even stupider than I was before (I'm not complaining about paying it, I believe in the principle)

purdyoaten

ludmilla wrote: »

this is why when a very stupid bear needs advice she turns to moneysavingexperts. I now understand that through the next year i will be paying by instalments last years tax - or am I being even stupider than I was before (I'm not complaining about paying it, I believe in the principle)

Sort of - in January and July 2015 (next year) you will be paying this year (2014/15) in instalments. The problem is always that 2014/15 cannot be determined until your return is filed.
Can't agree with the self-castigation - horses (or bears) for courses. You, presumably, are paying someone who claims the expertise to explain this to you and they haven't.