Tax calculation - payment on account seems unusually higher?!

icicat

Hey all, 

My calculation for 23/24 tax year seems off compared to previous year.

So 22/23, Profit from self-employment £9,030.00

Payment on account x2 = £3,326.2

23/24, Profit from self-employment £12,573.00

Payment on account x2 = £6,241.86

So for the extra £3,543 I earnt in 23/24 I'm being taxed an extra £2,915.66?!

I can't make any sense out of this. 23/24 I had a slight pay rise in my full time job and also received dividends and capital gains for shares, though that should all be taxed separately and shouldn't influence my self employment earnings which the POA reflects.

I'm posting the payment on account figures as I don't understand the calculation, so assuming the POA figures are what I'm being taxed on my self employment income only.

Can anyone help me understand this huge hike in tax?!

DE_612183

When you say......

So 22/23, Profit from self-employment £9,030.00

Payment on account x2 = £3,326.2

The 2 x £3,3326.2 - are they towards the 23/24 tax year?

As far as I was aware POA are just estimates towards you actual end of year tax bill - when the final amount gets calculated you either get back what you've over-paid or settle up anything outstanding....

Sarahspangles

icicat said:

Hey all, 

My calculation for 23/24 tax year seems off compared to previous year.

So 22/23, Profit from self-employment £9,030.00

Payment on account x2 = £3,326.2

23/24, Profit from self-employment £12,573.00

Payment on account x2 = £6,241.86

So for the extra £3,543 I earnt in 23/24 I'm being taxed an extra £2,915.66?!

I can't make any sense out of this. 23/24 I had a slight pay rise in my full time job and also received dividends and capital gains for shares, though that should all be taxed separately and shouldn't influence my self employment earnings which the POA reflects.

I'm posting the payment on account figures as I don't understand the calculation, so assuming the POA figures are what I'm being taxed on my self employment income only.

Can anyone help me understand this huge hike in tax?!

Were you previously close to Higher Rate Tax with your combined earned income

sheramber

Your payments on account for 23/24 are  two payments each equal t half your total  payable 22/23.  These are estimated amounts pad by 31 January 2024 and 31 July 2034.

When your self assessment return for 23/24 is processed  your total liability is calculated and the payment on account already made are deducted to leave abalance paybale or a repayment due of anything overpaid.

e.g if you were due to pay £9000 for 23/23 your payments on account for 23/24 would be £4500 each.

if your 23/24 calculation was for £12000 due , then the £9000 you have already paid is deducted and your due to pay balance of £3000 by 31 January 25, along with a payment on account of £6000. There will be a second payment on account due by 31 July of £6000.

Your self assessment calculates the tax due on your total income and them deducts any tax already paid, leaving a balance payable. if your PAYE has used up most or all of your basic rate band then some or all of your self employed income will be charged at the higher rate

If you want someone to explain  the calculations for 22/23 or 23/24 then post a copy of them, deleting any identifying details, 

eskbanker

sheramber said:

Your payments on account for 23/24 are  two payments each equal t half your total  payable 22/23.  These are estimated amounts pad by 31 January 2024 and 31 July 2034.

Very generous payment terms....

Dazed_and_C0nfused

icicat said:

Hey all, 

My calculation for 23/24 tax year seems off compared to previous year.

So 22/23, Profit from self-employment £9,030.00

Payment on account x2 = £3,326.2

23/24, Profit from self-employment £12,573.00

Payment on account x2 = £6,241.86

So for the extra £3,543 I earnt in 23/24 I'm being taxed an extra £2,915.66?!

I can't make any sense out of this. 23/24 I had a slight pay rise in my full time job and also received dividends and capital gains for shares, though that should all be taxed separately and shouldn't influence my self employment earnings which the POA reflects.

I'm posting the payment on account figures as I don't understand the calculation, so assuming the POA figures are what I'm being taxed on my self employment income only.

Can anyone help me understand this huge hike in tax?!

You seem to be under the (mistaken) impression that POA are based on your self employment.

They aren't.  POA are based on your total liability, less one or two things like CGT and Class 2 NI.

Without more information it's difficult to say what else you have misunderstood.

icicat

Thanks for the replies folks. Sorry for the confusion. In my head POA they ask for the following tax year is the same as the tax of my self employment for the tax year. So they are assuming I will earn exactly the same next year.

I couldn't figure out what my actual tax for my self employment profit was as it is mixed in with captital gains taxes, so I assumed the POA it was asking me for is what my tax was for just the self employment profit.

Or am I totally mis-understanding it? This is all down to not being able to understand the tax calculation. I just can't make sense of it

Dazed_and_C0nfused

If you want to see how much different income impacts things just start with your PAYE income and see what you owe at that point (if anything).

Then add in the self employment section and see how much extra you owe.

And finally add in the dividends and see how much more they add to the bottom line.

And remember the golden rule when looking at your Self Assessment tax calculation, remove POA from your thoughts, they are nothing whatsoever to do with your tax calculation.

saajan_12

Hard to advise on numbers for only one side of it. How much was your salaried / other income? Also any material CGT? 

icicat

Thanks guys. Here are the calculations for both years.

so in the section 'how we have worked out your income tax', If I deduct the CGT, then what remains is £6,241.87. Is this what I am being taxed for my self employment profit alone? As that is the same amount it is asking me to pay on account for the following tax year.

So for a self employment profit of £12,573 it's worked out the tax due is £6,241.87? so 50%?!?

Where as previous tax year my self employment profit was £9,030 and tax due was £3,326.20

So from my understanding for whatever reason, I earned an extra £3,543 for 23/24 and have been taxed an extra £3,326.20??

Seems a bit excessive, even with any UK bank interest or child benefit added on top. Is the payment on account assuming I will have the same amount of UK bank interest next year?

2022/2023 calculation






2023/2024 calculation

eskbanker

Still not sure why you seem to feel that the tax increase is solely due to self-employment profit, when there are clearly a whole range of factors contributing to an increase in overall taxation:

• child benefit charge
• savings interest
• salary increase, leaving less of your basic rate for self-employment and other income