Starting Self Assessment - How is last year's PAYE settled?

Shylock_249

I might have to register for SA and I'm totally confused how the transition from PAYE to SA works.

I might be wrong but it always seems to me that PAYE Tax Code figure is made up of actuals, ie Salary, Occupational Pension, State Pension and Actual Savings Interest BUT also includes Estimates of Savings.

I'd imagine that years 3 - 4 of SA wouldn't be too complicated, keep a record, fill in the online form etc, BUT what about year 1 where last year's PAYE figures show, in my case: You Owe HMRC an arm and a leg and as such HMRC would adjust my tax code accordingly?

Could some kind person please try and explain it to me?

TIA

Additionally, if at towards the end of the FY my Interest on Savings peaks above 10k, lets say on 1 Jan, I'm NOT aware of it, would I be in trouble with HMRC, or would they deal with it through PAYE until the end of the FY and tell me to register for SA for the next FY?

DullGreyGuy

So are you stopping your employed life as soon as you start trading as a sole trader or is there a period of overlap?

Presumably you will stop being an employee and start being a sole trader mid financial year?

Ultimately when doing the self assessment form for the first year you would fill in the details in both the self employed and the employee sections. The former you enter your trading details and the second you enter the details off your P60 & P11D. 

This will ultimately calculate the tax due across both your efforts, savings etc and then remove the taxes that have already been collected to present what outstanding tax you have to pay (or if you have a rebate). 

Shylock_249

DullGreyGuy said:

So are you stopping your employed life as soon as you start trading as a sole trader or is there a period of overlap?

Presumably you will stop being an employee and start being a sole trader mid financial year?

Ultimately when doing the self assessment form for the first year you would fill in the details in both the self employed and the employee sections. The former you enter your trading details and the second you enter the details off your P60 & P11D. 

This will ultimately calculate the tax due across both your efforts, savings etc and then remove the taxes that have already been collected to present what outstanding tax you have to pay (or if you have a rebate). 

Sorry, you've completely baffled me.

I've been retired for 10 years.  I might have to go to SA because tax on interest "might" peak over 10k, the threashold above which those on PAYE are moved/get moved to SA.

Thanks

allconnected

Whether or not you have to complete a self assessment tax return has no effect on whether income you receive is subject to tax under PAYE.

If you receive income from employment or a pension, it will be taxed under PAYE at the time of  receipt. If you have to complete a tax return under the self assessment rules, you’ll simply include the income, and the the tax deducted, in that self assessment return, together with any other income I.e. interest you’ve received in the year. You don’t move ‘from’ PAYE to SA - they are two separate things.

Shylock_249

allconnected said:

Whether or not you have to complete a self assessment tax return has no effect on whether income you receive is subject to tax under PAYE.

If you receive income from employment or a pension, it will be taxed under PAYE at the time of  receipt. If you have to complete a tax return under the self assessment rules, you’ll simply include the income, and the the tax deducted, in that self assessment return, together with any other income I.e. interest you’ve received in the year. You don’t move ‘from’ PAYE to SA - they are two separate things.

Thank you.  I think I understand that but I'm still confused inasmuch about what happens to the last PAYE credit/deficit.

Each year I get letter from HMRC saying I owe them such and such an amount - I suppose I could get a letter saying I'm in credit etc.

When forwarding SA forms to HMRC for the first time do they look at last year's PAYE figures, identify that their estimates were incorrect, adjust them and take this into consideration when advising how much tax has to be paid on the 1st SA year?  I'd suppose that only the figures supplied by myself would be used for years 2 onwards as NO estimates only facts were used?

Thanks again (sorry if I seem a bit thick)

[Deleted User]

You really are complicating matters! PAYE code numbers are simply an attempt to arrive at the correct tax liability - nothing more!

Let’s say that you need to file a self-assessment for 2023/24 - your first one. 

On this you declare ALL of your income  from all sources AND what tax has been deducted under PAYE in 2023/24. All estimates, code numbers etc for 2023/24 are now irrelevant - you now have a correct and final calculation of your tax liability and that is all that matters. 

As a result of this calculation of your liability any further tax becoming payable, must be paid by 31st January 2025. However, if you file the return by 30th December 2024 you can ask for any underpayment to be collected through your PAYE code number for 2024/25, spreading the collection over twelve months with no interest charged. 

sheramber

You show all income on the return on the appropriate pages. 

There is a part to enter your state pension,  for your interest received between 6 April one year and 5th April the following year.

If you have an occupational pension you will need to show that  in the appropriate section and any tax deducted during the year. 

The system will work out what tax you are due to pay and compare it with what tax you have paid. If it is too much you will have a credit. if it is not enough you will have an amount to pay.

if pert of your income is taxed under PAYE that will continue as before, and after the end of each year what tax you have paid will be compared with what tax is due, as above.

As you are not asked to complete a return until after the end of the tax year  you will know how much interest you have received in the previous year.

Perhaps you should wait until you are required to complete a return and come back with full details of your income for the year so someone can advise you where to enter the information.

Shylock_249

[Deleted User] said:

You really are complicating matters! PAYE code numbers are simply an attempt to arrive at the correct tax liability - nothing more!

Let’s say that you need to file a self-assessment for 2023/24 - your first one. 

On this you declare ALL of your income  from all sources AND what tax has been deducted under PAYE in 2023/24. All estimates, code numbers etc for 2023/24 are now irrelevant - you now have a correct and final calculation of your tax liability and that is all that matters. 

As a result of this calculation of your liability any further tax becoming payable, must be paid by 31st January 2025. However, if you file the return by 30th December 2024 you can ask for any underpayment to be collected through your PAYE code number for 2024/25, spreading the collection over twelve months with no interest charged. 

Very interesting and informative. Thank you very much (I've learnt something).

Shylock_249

sheramber said:

You show all income on the return on the appropriate pages. 

There is a part to enter your state pension,  for your interest received between 6 April one year and 5th April the following year.

If you have an occupational pension you will need to show that  in the appropriate section and any tax deducted during the year. 

The system will work out what tax you are due to pay and compare it with what tax you have paid. If it is too much you will have a credit. if it is not enough you will have an amount to pay.

if pert of your income is taxed under PAYE that will continue as before, and after the end of each year what tax you have paid will be compared with what tax is due, as above.

As you are not asked to complete a return until after the end of the tax year  you will know how much interest you have received in the previous year.

Perhaps you should wait until you are required to complete a return and come back with full details of your income for the year so someone can advise you where to enter the information.

Thank you very much, just the sort of reply I'd hoped for, I can now understand it better.

I had thought that when completing SA I'd have to work out what tax I should pay. In my case my 3 pensions (excluding state pension) are all taxed by PAYE and working out the interest above 1k would be pretty easy.  It's a relief to read that HMRC work out the tax figure.

Thanks again

[Deleted User]

Shylock_249 said:

sheramber said:

You show all income on the return on the appropriate pages. 

There is a part to enter your state pension,  for your interest received between 6 April one year and 5th April the following year.

If you have an occupational pension you will need to show that  in the appropriate section and any tax deducted during the year. 

The system will work out what tax you are due to pay and compare it with what tax you have paid. If it is too much you will have a credit. if it is not enough you will have an amount to pay.

if pert of your income is taxed under PAYE that will continue as before, and after the end of each year what tax you have paid will be compared with what tax is due, as above.

As you are not asked to complete a return until after the end of the tax year  you will know how much interest you have received in the previous year.

Perhaps you should wait until you are required to complete a return and come back with full details of your income for the year so someone can advise you where to enter the information.

Thank you very much, just the sort of reply I'd hoped for, I can now understand it better.

I had thought that when completing SA I'd have to work out what tax I should pay. In my case my 3 pensions (excluding state pension) are all taxed by PAYE and working out the interest above 1k would be pretty easy.  It's a relief to read that HMRC work out the tax figure.

Thanks again

While preparing the return, and just before you submit, you will be able to view the calculation generated by the entries. If something clearly is incorrect you have every opportunity to amend before submission.

Dazed_and_C0nfused

You also need to include details of any tax underpayment which was included in the tax code of the tax year the Self Assessment returns relates to.

So say for example you owed, in total, £500 at 5 April 2023 and £200 of this was being collected via your 2023-24 tax code you would only need to include the £200 on your 2023-24 Self Assessment return.

NB.  There is a specific box for this.