Self Assessment confusing

lutonhatters

HMRC shows I have overpaid tax last year and it’s not the first time this happens although I follow the instructions for payment due every year exactly.

Last year my tax bill was £6,000. My calculation said I had to pay (rounded figures):
£3,000 by 31 January 2019
£6,000 by 31 January 2019
£3,000 by 31 July 2019

My return is quite simple so I always file my return soon after the financial year end. I don’t like to owe money so I always pay everything straight away. So last April I paid £12,000 to clear the full amount owed including advance payments ‘on account’.

This year I am doing my return, but I checked with HMRC and they say I have paid too much last year. I always seem to end up with an over-payment despite paying everything calculated.

Would I solve the annual tax over-payments by not paying the advance payment due for July? Because I always file and pay my tax returns in April or May at the latest, can I get away with just paying the two January payments calculated, and ignore the July amount?

I use an online package which submits the return data to HMRC, so I need to manually enter any payments on account or overpayments, it doesn’t get adjusted automatically. So I would like to solve the continuous over-payment error.

Thank you!

Dazed_and_confused

You should not normally be including any payments you made on your return.

I think you are getting two things slightly confused.

Your Self Assessment calculation shows what you owe for each tax year.

Your Self Assessment account shows this liability and your payments.

Last year my tax bill was £6,000. My calculation said I had to pay (rounded figures):
£3,000 by 31 January 2019
£6,000 by 31 January 2019
£3,000 by 31 July 2019

So the middle entry looks like it was to pay the 2017:18 tax

And the top and bottom are payments on account required towards your 2018:19 liability.

Can you confirm what the 2017:18 liability was (from the bottom of your tax calculation) and what your 2018:19 liability is (again from the bottom of your calculation). These two figures should not take into account any payments you have made. That bit comes later.

tacpot12

The Self Assessment system, particularly when it comes to payments on account, is not that clear.

When it asked for payments of £6000 + £3000 on 31 Jan 2019 and £3000 on 31 June 2019, they wanted the £6000 to pay your 2017-18 tax bill, and £6000 of payments on account for 2018-19. You paid £12,000 in April 2018, so you put your account in credit by £6000 - this is not an overpayment and the HMRC employee should not have told you that you overpaid. You did not.

You cannot solve the overpayment problem because there isn't an overpayment problem.
You need to pay the tax that is due for the previous tax year by 31st Jan, if you want to do this in the April of the next tax year you can, but you have to make the payments on account by 31st Jan and 31st June, you cannot refuse to pay the amounts demanded "on account" without convincing HMRC that you will not owe any tax in the next tax year.

You seem to be confusing the tax that is due with the payments on account that HMRC are asking you to make. These payments on account are not for tax that is due, but is a pre-payment in case our will have tax to pay in the following tax year.

lutonhatters

Dazed and confused yes the £6,000 was my tax due last year.

tacpot12 yes I find it confusing.

This year my tax is £9,000. And the SA software has given the figures to pay:
£4,500 by 31 January 2020
£9,000 by 31 January 2020
£4,500 by 31 July 2020
So I would normally now pay £18,000 to make sure I owe nothing. But I always seem to end up with too much credit at HMRC when I get to next April and file and pay my next SA.

tacpit12, you say I cannot solve the problem because there is no overpayment. But I always seem to end up with too much credit at HMRC when I get to next April and file and pay my next SA.

Why this year, can I not just pay the £13,500 (£9,000 + £4,500) due by Jan 2020? Why do I need to bother paying the other £4,500 now (or in June 2020) if I know I will pay my full tax due for next tax year 2019-2020 and the January 2021 payment on account together next April straight after the year end?

Dazed_and_confused

You are massively overcomplicating things.

2017:18 tax liability £6,000
2018:19 tax liability £9,000
2019:20 tax liability not yet known


Payments required (by tax year)

2017:18
31:01:2019 = £6,000
Total £6,000

2018:19
31:01:2019 = £3,000
31:07:2019 = £3,000
31:01:2020 = £3,000
Total £9,000

2019:20
31:01:2020 = £4,500
31:07:2020 = £4,500
Total £9,000 (payments on account pending completion of the 2019:20 tax return. These will remain the same if the 2019:20 liability is £9,000 or more but will be reduced if the 2019:20 liability is less than £9,000)

This year my tax is £9,000. And the SA software has given the figures to pay:
£4,500 by 31 January 2020
£9,000 by 31 January 2020
£4,500 by 31 July 2020
So I would normally now pay £18,000 to make sure I owe nothing. But I always seem to end up with too much credit at HMRC when I get to next April and file and pay my next SA.

Given we are less than a week into the current tax year I presume you really mean last year (2018:19) not this year.

Your software isn't taking into account any payments on account which might have been paid towards the 2018:19 liability (£3,000 on each of 31:01:2019 and 31:07:2019). Paying £18,000 is madness.

Can you look at your Self Assessment account to see if the amounts and payments dates shown at the top of this post match up with your account?

Dazed_and_confused

Your account will not show the amounts payable in 2020 until a day or two after you have filed your 2018:19 return.

lutonhatters

Dazed and confused, thanks for that. I think the software isn't accounting for payments on account because I have changed software this year. I notice it does ask me to enter payments on account manually. This is what my 2018-19 is showing now:

Total Tax due £9,000
Minus:
1st payment on account 2018-19 £ 0
2nd payment on account 2018-19 £ 0
Plus:
1st payment on account due 31 Jan 2020: £4,500
Total due 31 Jan 2020: £13,500
2nd payment on account due on 31 July 2020: £4,500

OK so now I manually entered £3,000 (what I paid 'on account last year) in both the 1st and 2nd payment on accounts showing £0 under 'Minus'.

I now get:
Total Tax due £9,000
Minus:
1st payment on account 2018-19 £ 3,000
2nd payment on account 2018-19 £ 3,000
Plus:
1st payment on account due 31 Jan 2020: £4,500
Total due 31 Jan 2020: £7,500
2nd payment on account due on 31 July 2020: £4,500

So if that is right it has at leaat reduced the total amount due by January to £7,500.
Like I said I don't like being in debt so normally I would pay £12,000 now to clear everything due until July 2020.

My question now is, can I ignore paying the 2nd payment on account (£4,500 July 2020) now, and just pay the £7,500 now which is due by 31 Janaury?
Next April I will file and pay my tax return well before July when the 2nd £4,500 is due. So when I do next years return can I just subtract only the paid January payment on account, and pay whatever is the calculated as due by January 31?
That way every April I can just always pay everything owed up to the following January, and if I do that I will never get in arrears? It would help my cash flow a lot. But I don't want to get into debt or next year do my tax return and find I owe a lot more than I expected. Debt scares me.

Dazed_and_confused

You cannot just ignore payments which are due. You will get charged interest and have a debt collector knocking on your door.

But if you have sufficient credit on your account this will pay it, problem solved.

But you are still getting things muddled. You do not need to worry about what the return shows should be payable, it is pretty much irrelevant.

You need to look at the actual tax calculation, the bit that shows your income, Personal Allowance etc and note the amount due for the tax year (£9,000 for 2018:19).

Then a few days after you have filed your return you need to look at your Self Assessment statement of account.

This should then show all your current liabilities up to date.

On the assumption you definitely paid the £6,000 due for 2017:18 you should see the following for 2018:19 (actuals) and 2019:20 (provisional payments on account).

31:01:2019
2018:19 1st POA £3,000

31:07:2019
2018:19 2nd POA £3,000

31:01:2020
2018:19 Balancing Payment £3,000

31:01:2020
2019:20 1st POA £4,500

31:07:2020
2019:20 2nd POA £4,500

So between now and next January you have £13,500 to pay. You may well have got credit on your account which pays some or all of this but you really don't want to waste your time worrying about the software. Stick with the facts on your account once your return has been filed.

tacpot12

I understand that having debts can be scary: HMRC does impose penalties for late payment, so you need make sure that you do pay the amounts due by the dates set.

You have two options:
You can pay in advance or you could open a second current account (ideally one that pays interest), make the payments that are due in the future to this account, and set up a standing order to make the payment about five days before it is due.


You cannot, as I explained in my first post NOT pay the £4,500 due in July 2020 WITHOUT explaining to the HMRC why you are going to pay less tax in the next tax year. With HMRC's agreement, you can not pay the £4,500, but you can't unilaterally decide not to pay.

TheCyclingProgrammer

I really don’t understand OP why you keep talking about being “in debt”. You are not in debt because you do not owe HMRC anything until the dates specified.

You’d get yourself into much less of a muddle if you paid the amounts specified at the times they were due and it would help with your cash flow.

If you pay the balancing payment for 18/19 and the first payment on account for 19/20 by next January and then submit your tax return for 19/20 before the second payment on account is due in Jul 20 then yes in theory you could make a balancing payment (which will be the tax calculation for 19/20 from next years tax return minus the payment on account made in Jan 20) *before* the payment on account in July 20 is due. This will leave you with nothing left to pay for the 19/20 tax year and you won’t need to make another payment in Jul 20. All you will have left to pay is your first payment on account for 20/21 in Jan 21.

TheCyclingProgrammer

tacpot12 wrote: »

You cannot, as I explained in my first post NOT pay the £4,500 due in July 2020 WITHOUT explaining to the HMRC why you are going to pay less tax in the next tax year. With HMRC's agreement, you can not pay the £4,500, but you can't unilaterally decide not to pay.

I don’t think OP is suggesting just not making their second payment on account. It reads to me that they want to just pay the £7500 due in Jan 20, then get their tax return filed after April 20 but before the second payment on account is due and then simply make a balancing payment for the 19/20 tax year.

If they were to do this they would have no liability to make a payment on account in Jul 20 as their tax bill for 19/20 will have been paid in full. I

If their tax liability is higher than 18/19 then the balancing payment will appear as a credit on their account, which will be reduced when the second payment on account becomes due in Jul and then reduced to nil when the balancing payment is due in Jan 21.

If the tax liability is lower, then again the payment will sit on their account until July when the payment on account is due. The lower tax calculation should result in the payment on account amount being reduced automatically once the tax return is filed.