Confusion over when I have to pay tax

turtlemoose

I am PAYE but also have some property income so registered for self-assessment for that. I get a benefit from my employer that changes value each year - I get a P11D with this on and it's recovered through my tax code.

I have always thought my tax was owed/paid like this:

During the current year (14/15) I pay:
PAYE on current year's earnings in employement (so 14/15)
Tax code reduction to recover LAST YEAR's P11D value (13/14)
Tax code reduction to recover LAST YEAR's SA income (13/14)


And that's how it has been since I've been doing self-assessment.

However, I've had a coding notice saying from April (as in next month) they are applying the two tax code reductions as normal but are also adding in an underpayment restriction for the SA income from 13/14.

I rung them to query it, and was told that I was wrong and this year's second tax code reduction to recover CURRENT YEAR's SA income (14/15).

So in 15/16 I'm expected to pay a previous year (13/14) and the current year (15/16).

Is this right? I always thought that it was only PAYE that you pay, well, as you earn. I thought the others were always paid this-year-for-the-previous-year once figures had been finalised?

This would leave me with a tax code of 194L , and mean I would start paying 40% tax once I hit earnings of £33729.


Help!

Spidernick

It sounds as if they have reduced your tax code at some point in 14/15 and, rather than you playing 'catch up' with the tax from April (which would mean a lot of tax taken out of your salary in one go) they estimate the shortfall from April, 'freeze' it and collect that via your tax code for 15/16. In terms of your 14/15 tax return you will effectively defer the estimated underpayment from 14/15 to 15/16.


Your 15/16 tax code should be:


Personal allowance (assuming your qualify);
Less: Benefits-in-kind (estimated based on latest P11D, i.e. 13/14):
Less: adjustment for 14/15 estimated underpayment (being underpayment x 100/20 or x 100/40, depending on whether your total anticipated income will take you into the 40% band or not);
Less: 13/14 SA underpayment (see below)?


I very much doubt that a 13/14 SA liability would be collected in 14/15, as your tax return would be filed in 14/15 and so HMRC would wait to the beginning of the next tax year to collect this, i.e. 15/16. Are you sure the 14/15 code isn't collecting a 12/13 SA underpayment?


Of course, you could always elect for your anticipated rental profit to be collected via your coding notice. Although you would pay more to begin with, it would probably simplify things. If your SA payment is such that it can be coded out, it doesn't sound as if you are making so much rental profit that coding it out isn't really feasible.


Hope that all makes sense!

turtlemoose

Thank you for replying.

Yes they did reduce my tax code in 14/15 - they did so from June and at the time I believed this was triggered by the SA I submitted in May.

So I presumed, at that point, that my deductions from my salary were current earnings + 13/14 p11d + tax owed from my SA 13/14

However, the 2015/2016 coding notice is not as you have said above unfortunately.

It says:

Personal allowance: 10600
Less: employer benefits 1434 (13/14 rate, fair enough they assume this until they have the p11d figures next month)

property income 3353 (13/14 rate, again fair for them to assume it until my tax return is submitted)

underpayment restriction 3870


In the section where they explain the underpayment restriction, they say it is for "£774.14 of tax from an earlier tax year". Well my 13/14 statement ended with balance owed of £774.14. Before this point my statement was zero, so it's not previous tax years - I've been over all the statements and checked.

But they've already been taking extra tax in 14/15 for this, so I rang them, and the woman at HMRC said all I said in my first post, that in 14/15 I'm paying for 14/15 SA income, and that in 15/16 I must pay for 13/14 AND 15/16.

Still totally confused....but leaning towards them being wrong???

turtlemoose

If I go on paying the previous year for the p11d and sa it goes like this for 14/15:

Employer taxable income: 31325
SA income after deductions (13/14): 3353
P11d (13/14): 1434
TOTAL TAXABLE INCOME: 36112
minus 10000 allowance is 26112 which comes to 5222 tax owed.
To date tax paid is 4729 and I expect another 395 to be taken in this month's salary

5222 - 4729 - 395 = £98 owed


I would then expect my tax for 2015/2016 to go like this:

Employer: 30453
Property (14/15): 4028
P11d (14/15): 1670
Underpayment restriction (14/15): 490

So on my 15/16 coding notice I'd expect to see a tax code of 441L NOT the 194L they've sent me.

turtlemoose

Wow it's helped just to write it all down.

I'm going to submit my tax return on the first possible day (6th I think?) and whatever the 14/15 calculation is for the property income, pay it as a lump sum and stop them doing it via my paye. It's just too confusing and it's upsetting thinking my income is going to drop. There's money in the "rented house" account set aside so I think I will just do that.

I still thing HMRC are trying to overcharge me though.

Spidernick

So your 13/14 SA return showed £774 due. I'm assuming that you did not pay this (by 31 January 2015) and opted for the underpayment to be collected via your tax code. If you are a 20% taxpayer then restricting your allowances by £3,870 gives tax on this at 20% of £774, so that is correct (this is the 100/20 of the underpayment to be coded out mentioned in my earlier post).

If your tax code was changed in June 2014 and was not a significant change then they may well not have 'frozen' the underpayment from April. If you look at your first payslip operating the change of code you may find you paid a little more tax than usual (based on a standard month - if you had something like a bonus that month the change might not have been noticeable) before evening out.

I think you need to dig out your 14/15 tax code (if you can find it) and see what is included there. My guess is that it's an underpayment from your 12/13 SA return and not 13/14. However, if it is 13/14 then they definitely should not be including this again in 15/16.

Submitting your 14/15 tax return early is a good idea, but bear in mind that your P11D won't get to you and HMRC until late June/early July most likely, so you may find your code gets changed once for your 14/15 rental profit and then again for your P11D benefits (unless these are pretty much static compared to 13/14). On that basis, submitting your tax return in the same late June/early July period may make sense, but it's up to you.

turtlemoose

This is my 14/15 Coding notice (Issued in May, effective from June). It includes my 13/14 actual figures - ie those from my SA.

This is how we worked out your tax code:
Your Personal Allowance £10000 (see Note 1 )
employer benefits -£1434 (see Note 2 )
property income -£3353 -£4787 (see Note 3 )
a tax-free amount of £5213 (see Note 4 )
We turn £5213 into a tax code of 521L


For 12/13 I paid it in a combination of card payment and monthly direct debit - I had a year of maternity leave during this period so doing it PAYE wasn't an option as there were no wages to take it from. I have got all the statements and confirmed it was paid correctly.

As at the 31st January 2015, according to my Self Assessment statement, the only tax owed is "balancing payment for 13/14 included in PAYE code for year 15/16".

Spidernick

So your 14/15 tax code has no underpayment coded out (I presume any 12/13 underpayment was paid in January 2014) and just uses estimates of your benefits and rental income for the year based on the most recent data to hand. 15/16 is doing exactly the same thing, but is also collecting your 13/14 SA underpayment over the year, rather than you paying this in one go in January 2015.

This all looks fine to me and means you have paid more towards your SA liability via PAYE than would have been the case had these benefits not been included. You get a credit for the PAYE you have paid when you come to do your SA tax return, so I cannot see the problem.

Feel free to press the 'thanks' button for all the time I've spent replying to your queries!

turtlemoose

Nope still don't see how they aren't trying to charge me twice for 13/14, but I've pressed the thanks button for you!!!

Spidernick

Sorry, but I don't know how else to explain this, but will try.

Unless you have paid your 13/14 tax bill in January this year and are also having this taken via your 15/16 tax code then you are not paying twice.

Remember that the estimates of your BIKs and rental profit in your tax code are purely that. They are estimates for 15/16 but use the most recent data available (i.e from your 13/14 tax return). They are not the actual tax due on the 13/14 benefits and rental. What the estimates try and do is to try and get the correct tax paid for the year via PAYE. It probably won't happen, as your rental profit will most likely change year on year, but you get credit on your tax return for the tax paid via PAYE, so it all comes out in the wash.

I hope this helps, but I can categorically say that, unless the first example above applies, you are not paying tax twice on the same income.

turtlemoose

I'm paying for the 13/14 BIK and rental income in my CURRENT tax code (which was reduced by my 13/14 actual figures, NOT by 12/13 figures). If they add the 13/14 rental income as an underpayment in 15/16 then I'll have paid it twice - this year and next.