Self assessment large tax bill question

Watchful

The overwhelming majority of my income is PAYE, but I have a very small self-employment income (about £5k per year) so I fill in an SA form. I normally end up paying about £1k in January and £1k in July.

I got a call from my accountant on Friday, saying that HMRC had made an error with my tax code for last year, and that I will have a larger than expected tax bill to pay before 30 January.

The tax calculation arrived today, showing that because of the tax code error there was a shortfall of £14k in my PAYE. I had changed job to one which had a higher salary, and different pension deductions and I had been doing a fair bit of overtime, so I didn't notice this.

Anyway, I now have a bill of £15k to pay, when I was excpecting to pay £1k.

Is there anything open to me to mitigate or spread this bill?

Savvy_Sue

I'd ask your accountant: it may depend on how the error with your tax code occurred. Is there any indication about that? Normally you get a P45 from the employer you're leaving, give it to the new employer, they send part of it to HMRC and use the information to get your tax code right. So was it HMRC who made the mistake, or the employer?

dori2o

It's an awfully large bill to be just the fault of a tax code 'error'.

Did the accountant explain what the error was?

Do you have more than 1 PAYE source? Have you changed jobs during the 2013/14 tax year? If so how many changes?

More info is needed to advise what your next step should be.

Ultimately though if you are paying for tax advice then your accountant should be handling it to the best of your advantage.

NYM

Could ESC A19 apply ?

Your Accountant should be able to advise you.

dori2o

NYM wrote: »

Could ESC A19 apply ?

Your Accountant should be able to advise you.

ESC A19 doesn't generally apply in SA cases.

NYM

dori2o wrote: »

ESC A19 doesn't generally apply in SA cases.

I was typing a response but you edited ..:D

Seriously though, if the OP had reasonable grounds to believe that the PAYE tax coding being operated by his employer was correct, then A19 might apply.

Watchful

It might sound a bit silly, but I didn't think to ask when I got the call. I knew it was coming up to tax time, so had transferred an extra £5k into my current account, so I could pay an "unexpected" bill.

They said it was a combination of an error of the tax code and also a change to personal allowances.

The latter would make sense, because the overtime would have pushed my income into the "60%" tax band. Just doing some basic sums suggests that about 1/2 of the deficit would be due to this personal allowance change.

It was only one change in employment in May. The p45 was correct (which makes a change, as several of the P45s I've had recently have been incorrect and have ended up in HMRC investigations).

I'll have a word with the accountant on Monday, but I was taken a bit by surprise, because if it can't be postponed, my first job on Monday morning is to start liquidating investments.

dori2o

Watchful wrote: »

It might sound a bit silly, but I didn't think to ask when I got the call. I knew it was coming up to tax time, so had transferred an extra £5k into my current account, so I could pay an "unexpected" bill.

They said it was a combination of an error of the tax code and also a change to personal allowances.

The latter would make sense, because the overtime would have pushed my income into the "60%" tax band. Just doing some basic sums suggests that about 1/2 of the deficit would be due to this personal allowance change.

It was only one change in employment in May. The p45 was correct (which makes a change, as several of the P45s I've had recently have been incorrect and have ended up in HMRC investigations).

I'll have a word with the accountant on Monday, but I was taken a bit by surprise, because if it can't be postponed, my first job on Monday morning is to start liquidating investments.

Am I right in thinking from your post that your total income for 13/14 is in excess of £100k? was it in excess of £150k?

That will explain some of the underpayment, but even if you had the full PA of 9440 that would only account for £3776 of the underpayment assuming that your income was below £150k.

So that still leaves in excess of £10k.

What was your tax code in 13/14? if it isn't 944L do you know how it was calculated?

Did you hand in your P45 to your new employer? was it actioned correctly, i.e. did your new employer take into account the pay and tax details from your old employer and calculate the tax due based on your total cumulative income? You will be able to tell this from your P60 as it should show pay/tax in this employment and pay/tax in previous employment.

Did you have any Benefits in Kind, i.e. Company car, Medical insurance, Loans etc from either of your employers.

As long as you contact HMRC before 31/01/2015 then you will be able to arrange a Time To Pay agreement so you can pay this off over an agreed period of time. There will be an interest charge and this will be calculated at the time you make the agreement and taken into account, but you will not suffer the late payment penalties as long as you make the agreement within the time limits.

dori2o

NYM wrote: »

I was typing a response but you edited ..:D

Seriously though, if the OP had reasonable grounds to believe that the PAYE tax coding being operated by his employer was correct, then A19 might apply.

It all depends on what this 'error' is with the code.

Generally someone who does SA year on year has their tax code updated upon receipt and process of their PY tax return.

So, the 2013/14 tax code would have been updated based on the details of the 12/13 tax return. This would have been submitted in the 13/14 tax year (by 31/01/14).

The rules under ESC A19 state that HMRC must have failed to use information provided to them within 12 months of the end of the tax year in which the information is received.

So for 13/14 HMRC must act on information received for that year before 5 April 2015.

As it stands an assessment for that year, including all the information relevant to that year, has been done within 12 months of the end of the tax year, i.e. before 05/04/2015.

Only if HMRC had received something in the 12/13 year which was relevant to the 13/14 year and didn't act on it before 5/04/2014, would this part of ESC A19 apply, but don't forget there is also the reasonableness test to pass and HMRC will argue that they issued tax code notices which identified tax code changes, and that it would be the taxpayers responsibility to advise of any errors at the time the notices were received, either in person or via their tax advisers.

Without knowing more details of the case it's hard to say what if anything is applicable.

Watchful

OK. I've been looking into this, and i think I've worked it out and panic is over.

My tax code was 1530L, when the accountant said it should be 32T. I think this might be due to some employment related expenses which changed with the new job - I had several £k of expenses to claim before.

The P45, despite what I said, was not correct. There was an arrears payment made to me after I left and this was declared on the tax return, but I had forgotten about it.

I've also found enough spare funds/interest free credit to cover the payment, so no panic about getting funds from stock brokers in time, or anything like that.

I guess this is just one of those artifacts of the peculiar "reduction in personal allowance" tax band. You'd expect with PAYE that a major tax bill would be unlikely, but it appears with this silly tariff that you need to pay close attention to your expected earnings, and contact HMRC regularly otherwise you may substantially underpay tax.

Thanks for all the help.

zygurat789

Watchful wrote: »

The P45, despite what I said, was not correct. There was an arrears payment made to me after I left and this was declared on the tax return, but I had forgotten about it.

.

And the tax deducted?