Taxed before you've got it.

polymaff

polymaff wrote: »

I know that plenty of threads have been down to a misunderstanding of Payments on Account - but:

Has anyone seen the new P2 - introduced by HMRC late in November? This jacks up your tax code in an attempt to get their estimate of your tax liability for 2017/18 paid by 5th April 2018.

Incidentally, I went online on receiving this P2 (dated 20th December 2017) this afternoon. It turns out that that P2 has already been overtaken by a new P2 that demands even more tax-in-advance!

Plus the same Payments on Account they wanted before they made these new demands.

polymaff wrote: »

... the quote seems to make it clear that by the end of this tax year HMRC will have, via re-coding, taken an extra, significant, sum from a PAYE-based occupational pension of mine.

This year - for me - has been rather like 2016/17 so the HMRC PoA estimates for 2017/18, based upon 2016/17 are pretty-well right. Thus the first 50% they want by 31st January as a Payment-on-Account for 2017/18 is acceptable - but this other in-year tax-grab of over 50% more is not acceptable - and there's no sign of them cancelling the July 31st demand for the second 50% PoA - yet.

For those following - especially Madgagoo - having spoken to HMRC, it is as suspected.

The new system, as per MTD philosophy, uses third-party, in-year, data from banks, etc. to ferret out taxable income - particularly interest - and then triggers a P2 to tax - asap - that discovered income. Problem is - and HMRC admit this to be a bug in the new system - it doesn't notice if PoA is already in operation and has made a demand for estimated tax on those discoveries - before they were discovered!

What a shambles! What does this do but confirm what a shambles MTD will be.

Anyway, P2 issued cancelled. Updated, even more wrong, P2 waiting to be issued stopped, and a promise that a P2 reverting to previous, benign, L-type PAYE coding to be issued to my pension provider within three working days. They promise.

EdSwippet

For a counter-example...

In this tax year I have taxable investment income, but no salary or pension withdrawals so no PAYE. And by pure chance I avoided 'payments on account' this year. HMRC can set my tax code to whatever they like but they get nothing out of it. With investment income paid gross, the outcome appears to be that I pay none of my 2017/18 tax bill until Jan 2019.

Result!

Next year I will probably face some 'payments on account' so not quite as good, but for now I can't help but feel the new system has handed me a 'golden ticket' for the current tax year.

TL:DR -- HMRC attempts to extract tax on investment income upfront through PAYE won't work on people who have no PAYE income.

polymaff

EdSwippet wrote: »

For a counter-example...

Completely irrelevant. What you describe is nothing new.

EdSwippet

polymaff wrote: »

Completely irrelevant. What you describe is nothing new.

Well, I wouldn't have received all my income without tax deducted at source in past years when interest was paid with 20% tax paid. And my tax owed at year end would also have been less when there was a 10% credit on dividends.

So perhaps not entirely new for everyone, but certainly a change over what would have happened in previous years for me. And now probably less niche and more common for others also.

polymaff

EdSwippet wrote: »

Well, I wouldn't have received all my income without tax deducted at source in past years when interest was paid with 20% tax paid. And my tax owed at year end would also have been less when there was a 10% credit on dividends.

So perhaps not entirely new for everyone, but certainly a change over what would have happened in previous years for me. And now probably less niche and more common for others also.

Yes, but your particular affairs listed are not in any way relevant to a new, serious HMRC error, that may affect many - which is what this thread attempts to throw some light upon. Ten years ago your first payment date, on the spread of income you describe, would have been the same as now.

The present is complex enough without others throwing in red herrings.