HMRC SA - Payment on Account??

liviboy

martinsurrey wrote: »

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



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.

Thanks for this - this makes sense to me but wondred how this worked with the £3000 limit as technically the whole amount owed is over £3000 would they take up to £3000 from PAYE code and invoice if you like for the remiander or as it's just over £3000 does this become a non-option?

sheramber

"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 relevant bit is the year - 2014-15. Only tax due for that year can be included in her code for 2016/17.

There is no mention or offer of tax due for 2015/16 being coded out.

There is no option for payments on account to be coded out.

If her estimated tax due until 5 April ( not up todate) is £1100 she can request that the payments on account be reduced to £550 each. However, if she reduces the payments and her final liability is more than that she will have interest to pay on the unpaid amount. e,g, if she redices the payments to £550 each but her final liablilty is £1200 , which would be two payment on account of £600 she would be charged interest on the late payment of £50 for the January payment on account.
So care should be taken when estimating any reduction in the payments on account.

TheCyclingProgrammer

Its a shame that HMRC don't do a better job of explaining payments on account when people register as self employed as I'm sure many people get confused about why they are being asked to pay "in advance" (except it isn't, as Pennywise explained) and then find themselves short of money to pay their tax.

Of course, there's a simple way to ensure you have the money for your payments on account and that is to always put aside a proportion of your monthly earnings - 20% plus a small amount for national insurance if you don't expect to be a higher rate tax payer - that way come January you will have 10 months of tax put aside for the current year - more than enough to cover the first payment on account (unless you've earned significantly less than the previous year in which case you can have your payments reduced accordingly).

Remember that once you get past that initial stage of having to pay a whole year's tax (the previous tax year) plus the first payment on account for the current tax year, you just get into a cycle of paying two payments on account and then either a balancing payment in January (if you've earned more than the estimate) or getting a rebate (if you've earned less and didn't reduce your payments on account).

Pennywise

Rather than a payday loan, she might be better off just paying HMRC as much as she can on 31/1/16 and then paying the balance off as soon as she can over the next few weeks/months. HMRC interest is low. They also charge a 5% surcharge on the amount unpaid after a month and then again six months later, but the interest and surcharge combined will probably be a lot cheaper than payday loan charges. HMRC won't send the debt collectors and bailiffs in for a couple of months or so, so if she can pay it all off during Feb and Mar, she probably won't get hassled by them.

She needs to get into the habit of saving the tax money as she earns it, rather than spending all the tutoring income she receives and then living in hope of more income the following year to pay the tax on last year's.

liviboy

If only!

I tried to explain when she first started tutoring to do this but there were "money issues" so she "couldn't".

She was therefore relieved that she could pay it over the 12 months.

I had no idea she had earned so much (the most I ever earned was £3,900) so I'm actually a bit annoyed at her. She used to live on her salary alone (with a few payday loans from time to time) but her salary was £34000 (less pension deductions, etc.) so to earn an additional £8000 and not have a penny of it saved is beyond me.

But then, my mum worked for the TSB and Abbey National when I was young and drummed-in to us the need to save and not get into "bad" debt ("good" debt, like utilising a credit card for monthly expenses and paying it off was heavily promoted to build a credit history and she basically called up my building society on my 18th birthday to apply for my first credit card haha!). So I'm a saver as much as I can be (wish I was at the moment...with baby number 1 on the way :j:j:j).

Anyway that's a bit off topic - basically I need her to get into a mindset of saving rather than spending (though what she spends it on I have no clue!).

Thanks everyone for your cotinued comments. As I say, if I hear back from her after her chat with the accountant I'll let you all know.

polymaff

I think that there may be confusion about the £3,000 issue.

AIUI there are two criteria for PoA. These are if you have an outstanding liability of £1,000 or more AND this represents more than 20% of your total assessed tax liability for that year (i.e. PAYE, interest with tax deducted at source etc. represented at least 80% of your total assessed tax liability). When you hit both these criteria you are into PoA. When you fulfill the first, but not the second, then you may be able to have up to £3,000 repaid via PAYE.

Once you are in PoA, you only escape once you have a return declaring less than £1,000 outstanding - although you can pre-empt this by requesting a reduction in PoA - but you'll be caned if that request turns out to be over-optimistic

liviboy

Thanks all again for your help.

Just to update, after having spoken to the accountant she has accepted that it is all correct. (I don't think she trusted me or all of your very helpful suggestions/reasons/official links).

She's going to try her best to save up the first POA over the next couple of months and then do the same for July.

Thanks again everyone!

Dazed_and_confused

I think she needs better advice as there seems to be a complete lack of understanding on this thread and possibly from her accountant on how payments on account work.
If, as you indicate in your first post, she is going to pay the Balancing Payment for 2014/15 through next years tax code (2016/17) then there won't be any payments on account to pay as she won't have made any direct payment to HMRC - her liability is such that payments on account would normally be due but only is she actually paid the Balancing Payment to HMRC.
If her PAYE income is still at the level indicated in the first post then collection of the balancing payment via next years code will mean there are no payments on account.
Once tax return is submitted she should wait a few days then check her SA account to see how the balancing payment will be collected and if payments on account actually exist.