Payments On Account - Am I Paying Too Much Tax?

Darkstorne

I've been completing self-assessment for the best part of a decade now, but always been a bit confused by this. Last year I paid £14.9k tax (with both payments on account factored in) on around £35k profit. Some of that will have been NICs and student loan repayments, but still... it seemed insanely high. I had earned much less the previous year though, so assumed it was down to the balancing payment. This year is the first time I've earned less than the previous year though, and am being asked to pay £12.1k (including both payments on account) on a £29.6k profit.

Is that right..? That seems insanely high. Almost like... they haven't factored in my previous year's payments on account? Because taxable income on £29.6k is about £17k, right? And I should be paying 20% of that £17k in tax - so £3.4k? Plus payments on account for next year, NICs, student loan etc, but... should that really be £12.1k?

I feel like I'm missing something, and I'm worried it's to do with payments on account. Have I overpaid every single year I've paid tax? Or is this all looking correct and I'm just wishing I could pay less? :rotfl:

polymaff

I've had HMRC ignore PoAs during the following year's reckoning. A couple of phone calls sorted it out - but it is not acceptable behaviour by HMRC.

You need to run a parallel set of accounts and compare them with HMRC's statements, I'm afraid.

As Stanley Baldwin said in 1931:

"power without responsibility — the prerogative of the harlot throughout the ages."

Darkstorne

Thanks for the reply I've taken a look at their annual summaries closely, and it turns out they didn't take into account my PoAs in last year's tax return, and say I'm around £2100 in credit which they have kindly held onto for me to use in credit for this year's tax return. Which is pretty s****y of them given they would certainly have charged me interest if I'd done this to them. And they didn't factor it into the bill they've asked me to pay this year anyway (£12.1k) so it's a double whammy of bull.

On top of that, they also haven't factored in the £6.6k of PoAs from last year into this year's £12.1k bill either, so this year, including the refund they owe me, they've tried getting me to pay around £8.7k too much tax. I don't even...

I don't have to pay anything until Jan 31st anyway, so I'll see if their calculations for what I owe them have changed later on this year. If not, I'll give them a phone call and ask them to explain how they're messing this up so badly.

TheCyclingProgrammer

Make sure you're looking at your online statement, not the calculation for your tax return. The tax return calculation will only show you the calculation for that year's liability. It will not account for any payments on account (these do not affect your tax calculation, only *what you owe* on account).

Darkstorne

I think I'm looking in the right place? It's such an awful site design. And there's no excuse for them not factoring PoA's and any credit you have into what you need to pay. I should be able to complete my tax return and have them tell me, very simply, how much I need to pay to balance the books. If they're going to have the audacity to make me pay for next year's tax return on account (which is ridiculous given how much self employed income fluctuates from year to year) then at the very least they should build a system that factors that payment from previous years into how much I owe them.

It really frustrates me that they're so strict on making sure the self-employed jump through all their ridiculous hoops, yet put so little effort into making their service user-friendly. How about being this strict with Google, Amazon, Facebook etc and asking them to pay all their taxes in full AND a year in advance?

BoGoF

Your tax calculation and statement of account are 2 different things. The calculaton will not show payments on account you have already paid.

Not sure where the 'audacity' is when asking you to make payments on account for the following year - it is a common, mistaken, belief amongst the self-employed that they are somehow paying in advance.

Darkstorne

Thanks, then I'm definitely looking in the right place now. If their calculation (the part they show you upon completing tax returns where they ask for X amount of money to be paid by X dates) doesn't include PoAs, then it's a flawed calculation. It certainly used to include it. I've always paid them what their calculation asked for, and trusted them to be correct. All previous years the PoAs were factored in (just trawled through all the records, theirs and mine), but last year and this year they haven't been for whatever reason.

polymaff

polymaff wrote: »

You need to run a parallel set of accounts and compare them with HMRC's statements

TheCyclingProgrammer wrote: »

Make sure you're looking at your online statement.

BoGoF wrote: »

Your tax calculation and statement of account are 2 different things. The calculaton will not show payments on account you have already paid.

You've received the same advice - use your HMRC statements to check out this issue, and yet you are still talking about calculations.

TheCyclingProgrammer

Darkstorne wrote: »

Thanks, then I'm definitely looking in the right place now. If their calculation (the part they show you upon completing tax returns where they ask for X amount of money to be paid by X dates) doesn't include PoAs, then it's a flawed calculation. It certainly used to include it. I've always paid them what their calculation asked for, and trusted them to be correct. All previous years the PoAs were factored in (just trawled through all the records, theirs and mine), but last year and this year they haven't been for whatever reason.

It’s not a flawed calculation. It’s perfectly correct for your tax calculation to disregard payments on account. It is a calculation of your tax bill for THAT YEAR.

This amount will get added to your account. Your account balance will then reflect the overall difference between what you owe and what you’ve paid. This is fairly basic bookkeeping.

If you purchase something from a supplier for £100 but happen to have a credit note for £10 due to a refund from a previous purchase for example, they would still issue an invoice for £100 even though you only owe them £90 due to the credit note. It’s the same principle.

Finally, payments “on account” are not advance payments as such. They are estimated payments made prior to the completion of your tax return but the payments themselves are made 10 months into and 4 months AFTER the tax year to which they correspond which is still a lot more favourable than those on PAYE who have their tax deducted automatically as they earn it. You can adjust your payments on account if you know you’re going to be earning less (and 10 months into the tax year you should have a reasonable idea).

Darkstorne

polymaff wrote: »

You've received the same advice - use your HMRC statements to check out this issue, and yet you are still talking about calculations.

The advice has been really helpful, and I completely understand where to look now I kept mentioning the calculations because it's annoying me that they used to factor in the PoAs here in the past but haven't done so this year or the last year, which confused me. It annoys me because they've held onto over £2k of my money they owed me (despite every year asking me to enter bank details in case they need to send a refund as part of my tax return) and I know that if I held onto £2k that should have been sent to them for a whole year, they'd charge me interest on it. Doesn't work both ways of course...

I'm not sure why it's changed the past two years, and why their calculation at the end of the tax return doesn't factor in PoAs and credit owed via refunds. I completely understand now that I need to look at a different part of their website to find that information, and not their tax calculation summary. I'm just saying I don't think that's a good calculation system, or at the very least not the information I need at that point. I need a calculation system that calculates how much I owe them. Not a total sum of tax for the year that does't calculate what I've already paid on account. That's not useful.

BoGoF

The POA's have never been factored into the tax calculations. The calculation is basically done 'off line' purely based on what you enter. At that stage there is no link to what you may have already paid on account.