HMRC SA - Payment on Account??

liviboy

Hi there,

My friend is a teacher who works full time but in addition does some tutoring work. When completing her Self Assessment this year she is being asked to pay the Tax due for 2014-15 and additionally make payments on account for 2015-16.

As the tax owed is under £3000 she wants it to be collected through her PAYE Tax Code...this is what she did last year no worries.

The issue is the Payment on Account. The two figures are quite high for her and she doesn't quite understand why she is being asked to pay for income she hasn't finished receiving. She knows already her 2015-16 income from tutoring will be less and would prefer to continue to pay her tax "in arrears" through her tax code.

I can't see any way of requesting this on the tax return online..but any advice or help would be much appreciated.

Figures are as follows:


This section provides you with a breakdown of your full calculation. If it says your tax return is 100% complete then you have submitted your return and this is a copy of the information held on your official online Self Assessment tax account with HM Revenue and Customs.


Pay from employments
£31,884.00

minus allowable expenses
£180.00

Total from all employments
£31,704.00

Profit from partnerships
£8,045.00

Total income received
£39,749.00


minus Personal Allowance
£10,000.00





Total income on which tax is due
£29,749.00




How we have worked out your income tax


Amount

Percentage

Total



Pay, pensions, profit etc
£29,749.00 @ 20% £5,949.80

Total income on which tax has been charged
£29,749.00

Income Tax charged
£5,949.80

plus Class 4 National Insurance contributions
£89.00 @ 9% £8.01

Income Tax and Class 4 National Insurance contributions due
£5,957.81

minus Tax deducted


From all employments
£4,339.00

Total tax deducted
£4,339.00

Income Tax and Class 4 National Insurance contributions due
£1,618.81


Estimated payment due by 31 January 2016

You must pay the total of any tax and class 4 NIC due for 2014-15 plus first payment on account due for 2015-16 by 31 January 2016.

2014-15 balancing payment
£1,618.81

1st payment on account for 2015-16 due 31 January 2016
(Note: 2nd payment of £809.41 due 31 July 2016)
£809.40

Total due by 31 January 2016
£2,428.21
This amount does not take into account any 2014-15 payments on account you may have already made

liviboy

blondebubbles wrote: »

The payment on account is basically half the income tax and class 4 NIC due after tax deducted at source.

So £1618.81 divided by 2 = £809.41 and £809.40

There is info here on how to reduce them if she knows her income will be less - https://www.gov.uk/understand-self-assessment-bill/payments-on-account

Hi Blonde,

I think the issue is, last year, her tax return had tax owed but as she had elected to pay it off through her tax code, the payment on account was £0.00


Total amount due for 2013-14
£485.00
Plus

First payment on account for 2014-15
£0.00


Total to be added to Self Assessment account due by 31 January 2015

HM Revenue & Customs will add this amount to your Self Assessment statement of account. It doesn't include any 2013-14 payments on account you may have made or any other amounts outstanding. To help you to decide how much, if anything, to pay by the due date, check your Self Assessment account and use the information above until it transfers over.


What we both don't understand is why this isn't happening again? She wants to pay the £1618 owed through PAYE and next year do the same.

The way it seems to be happening this year is she will pay this through PAYE but in addition pay two "payments on account" which will eventually pay the tax owed for 2015-16.

She doesn't want this as she simply would have issues affording it. She has always planned her tutoring work around the ability to "pay off" her tax through her Tax Code as she is doing this year for last year's tax.

HMRC are basically asking for twice the amount of tax actually owed "in preparation" for her tax return for 2015-16.

jimmo

Did she by any chance put a cross in the box on page TR6 under “If you have not paid enough tax” when she should have left it blank?

liviboy

jimmo wrote: »

Did she by any chance put a cross in the box on page TR6 under “If you have not paid enough tax” when she should have left it blank?

Hi Jimmo,

She's doing it online.

I'm not sure of the reference to TR6 but assume I've got the right page:

"If you are submitting by 30 December, owe tax for 2014-15 and have a PAYE tax code, do you want us to try to collect the tax due (if less than £3,000) through your tax code for 2016-17?*" She has selected YES to this as she wants it collected through PAYE.

The box underneath which says:

"If you are likely to owe tax for the current tax year (ended 5 April 2016) on income other than employed earnings/pensions e.g savings or the High Income Child Benefit Charge, do you want us to use your 2015-16 PAYE tax code to collect that tax during the year?"

She has selected NO

jimmo

I don’t have access to the SA system and can only see the “paper” version online.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/438649/sa100.pdf
“You can pay the amount you owe through your wages
or pension in the year starting 6 April 2016 if you owe
less than £3,000 for the tax year ended 5 April 2015
and send us your paper tax return by 31 October or
30 December 2015 if you file online. If you want us to
try to collect what you owe this way you don’t need to
do anything more. But if you do not want us to do this
then put ‘X’ in the box - read the guide”
The wording is slightly different where its cross or no cross rather than yes or no but I think we are talking about the same section.
Two possible solutions:
1) wait for a couple of days until her “Statement of Account” is available and see what that says.
2) She’ll have to ring the SA helpline- best done between 7.45 and 8.00 am when the chances of getting through are much better than any other time of day.

liviboy

Cheers Jimmo,

I've advised her the best folk to talk to are the tax men (and women) themselves. Always been helpful when I've eventually got through.

I think my confusion stems because of this £3000 limit for PAYE deductions. As she is slightly over half of that I can't see the issue with her doing so.

I'll hopefully find out what they say to her and will report back for others!

Cheers all!

Anatidaephobia

liviboy wrote: »

I think the issue is, last year, her tax return had tax owed but as she had elected to pay it off through her tax code, the payment on account was £0.00

Total amount due for 2013-14
£485.00
Plus

First payment on account for 2014-15
£0.00

What we both don't understand is why this isn't happening again? She wants to pay the £1618 owed through PAYE and next year do the same.

The way it seems to be happening this year is she will pay this through PAYE but in addition pay two "payments on account" which will eventually pay the tax owed for 2015-16.

The reasons for payments on account are explained on the link that blondebubbles posted.

Payments on account are created when the tax you owe is more than £1000. Your friend didn't have to pay payments on account for the tax year 2014/15 because she only owed £485 for 2013/14. She owes more than £1000 for 2014/15 so it has created payments on account for 2015/16 based on the assumption that she will have similar earnings and therefore be due to pay the same amount of tax.

The issue of paying the balancing payment via her tax code is completely unconnected to the payments on account and is not the reason they are required.

liviboy

Hi Anat,

Thanks for the reply.

I'm aware the issues are unconnected.

The issue is that according to HMRC paperwork, if the tax owed is less than £3000 she can pay it off through her tax code.

The question therefore is, that as the tax owed is £1618 (much less than £3000) the system is not allowing her to continue to pay tax through her tax code rather than asking for payment for 2015-16 in "advance" if you like.

If she was earning mega money I could understand it a bit better, but if the paperwork says "less than £3000" then why are they wanting her to pay both last year's tax and this year's tax at the same time? And it would appear in two lump sums rather than monthly through her code. (I am aware of the £1000 limit but this seems to contradict the other paperwork available IYKWIM?).

There seems to be a bit of confusion with what I'm actually asking. Ultimately, why can she not continue to pay her tax "in arrears" if you like through her code, rather than doing this for 2014-15 but additionally being required to pay in advance for 2015-16? It's the fact it's a double-amount that is the issue.

She has no issue with paying tax owed, but in theory the tax for 2015-16 isn't due in January because she hasn't earned the money yet - so why do they want her to pay in advance AND will penalise her if she reduces it to less than she eventually owes rather than allowing her to continue to pay monthly?

Pennywise

liviboy wrote: »

She has no issue with paying tax owed, but in theory the tax for 2015-16 isn't due in January because she hasn't earned the money yet - so why do they want her to pay in advance AND will penalise her if she reduces it to less than she eventually owes rather than allowing her to continue to pay monthly?

She's not paying "in advance". By the time the first payment is due, 31/1, she's earned 10 months of income, but being asked to pay tax on six months. By the second due date, 31/7, it's 4 months after the year end, and she's asked to pay tax on the second six months. So, yes, being asked to pay a little sooner, but still long after she's earned it.

If her self employment is less than the year before, she can elect to reduce the payments on account accordingly, down to an amount closer to the eventual liability.

That's the way the system works. It's all about getting the tax collected sooner and closer to when it was earned.

martinsurrey

liviboy wrote: »

Hi Anat,

Thanks for the reply.

I'm aware the issues are unconnected.

The issue is that according to HMRC paperwork, if the tax owed is less than £3000 she can pay it off through her tax code.

The question therefore is, that as the tax owed is £1618 (much less than £3000) the system is not allowing her to continue to pay tax through her tax code rather than asking for payment for 2015-16 in "advance" if you like.

If she was earning mega money I could understand it a bit better, but if the paperwork says "less than £3000" then why are they wanting her to pay both last year's tax and this year's tax at the same time? And it would appear in two lump sums rather than monthly through her code. (I am aware of the £1000 limit but this seems to contradict the other paperwork available IYKWIM?).

There seems to be a bit of confusion with what I'm actually asking. Ultimately, why can she not continue to pay her tax "in arrears" if you like through her code, rather than doing this for 2014-15 but additionally being required to pay in advance for 2015-16? It's the fact it's a double-amount that is the issue.

She has no issue with paying tax owed, but in theory the tax for 2015-16 isn't due in January because she hasn't earned the money yet - so why do they want her to pay in advance AND will penalise her if she reduces it to less than she eventually owes rather than allowing her to continue to pay monthly?

it IS allowing her to pay through her tax code, just not 12 months in arrears.

liviboy wrote: »

"If you are likely to owe tax for the current tax year (ended 5 April 2016) on income other than employed earnings/pensions e.g savings or the High Income Child Benefit Charge, do you want us to use your 2015-16 PAYE tax code to collect that tax during the year?"

She has selected NO

If she selects YES to that her tax code will be adjusted for the underpaid from last year and the estimate of this years.

the £3000 limit isnt there to avoid paying some tax until 12 months after the end of the tax year in which it was earnt.

liviboy

Whoah guys, don't shoot the messenger haha!

It's just all a bit difficult for people who don't normally have to deal with Self Assessment, etc. Last year was the first year she ever had to do a tax return.

The issue now is she doesn't actually have the funds to pay 6 months in January and 6 months in July as she was under the belief that she would continue to do what she did this year which was to pay off tax OWED over the next tax year.

What is being asked now is to pay tax OWED (i.e. tax return submitted) plus potential tax for the following year (this is what I meant by "in advance" and it's why it was written in inverted commas because we all know it isn't in advance).

This is a serious issue as she would need to make use of payday lenders (the whole reason she got into tutoring was to stop needing to use them) in order to have the first £840 by January 31st.

As I said previously she has no issue with paying tax actually owed but all the paperwork she received originally from HMRC made reference to paying it off through the following year's PAYE tax code so she hasn't calculated/saved for payments on account because she didn't know they actually existed and believed as long as the tax owed was less than £3000 she would have no issue doing it this way.

All I was after was a bit of advice to check:

1) the tax return had been compelted correctly (I checked it over and couldn't see any glaring mistakes, but thought best to post here to check, thanks to all who have confirmed boxes, etc.)

And 2) the system is designed to work in this way and there is very little she can do about it (tax owed for next year will likely be around £1100 given current earnings).

Thanks to everyone for their help/information/suggestions. I've passed it back to her. She is going to speak with the accountant of the tutoring company who has offered to sit down and explain everything step-by-step so there are no misunderstandings.