The dreaded Tax Return Time!! Problems, Questions & Answers.

[How about a Dictator Loco Class?]

My problem each year is understanding Payment on Account. Balancing Payments can also be a source of confusion and annoyance.

I'll put a better explanation below but basically; If you pay your previous tax bill in full each January 31st
+ half of what they predict you will earn next year.

And then each July 31st you pay the other half of what they predict you will owe next year, then you are paying 2 years tax each year surely?
My bill always seems more than double what it should be every year.

If this happened just once you would be a year ahead. But I pay two years worth every year?

 

Can anyone explain why this happens every year and if this right please?

Is anyone else having a similar problem?

 

Thank you.

Rob

 

 

 

Payment on account

 

HMRC runs a system called “payment on account” for those who pay most of their tax through Self Assessment. If more than 80% of your income gets taxed through PAYE, then this won’t apply to you. Otherwise, if your Self Assessment bill is more than £1,000, you’ll need to make a payment on account.

This means that, in addition to the 2018/19 bill that you need to settle by midnight on 31st January 2019, you also need to pay half of your total expected 2019/20 tax by the same deadline.

The other half of the 2019/20 bill is then due on 31st July 2020.

This way, HMRC ensures that self-employed workers aren’t benefiting by being able to pay considerable amounts of tax many months in arrears. The result for many, newly self-employed people is that they typically face a tax bill which is roughly 50% higher than they had been expecting.

 

Once you are over the initial hurdle, payments on account simply spread your tax bill across the year and can make it easier to budget.

 

 

 

[jpendle]

I have no idea as I live in the US, but we have a similar system of paying 'up front'

 

So over here if you make payments 'on account' then these payments are taken into account on your tax return and are subtracted from any amounts you owe the tax man at year end.

 

I would have thought the UK system would be similar.

 

(Before we moved to the US in 1999, I was always on PAYE and have never filled in a UK Tax return)

 

Regards,

 

John P

[brigo]

A newly self-employed person will only pay the roughly 50% extra on their first assessment in January. In the following January assessments they will be billed for the difference between the previous January / July pre-payments and the actual tax owing (may even get a refund) plus the next 50% pre-payment. You should not be paying a full years tax plus 50% every January.

 

Brian

[Gordon A]

I made the decision when I retired to use the services of a recommended accountant.

Cost me a £120.00 this year. As far as I am concerned minimal worries providing you provide accurate information.

 

Gordon A

[How about a Dictator Loco Class?]

4 hours ago, Gordon A said:

I made the decision when I retired to use the services of a recommended accountant.

Cost me a £120.00 this year. As far as I am concerned minimal worries providing you provide accurate information.

 

Gordon A

I was wondering what an accountant costs. That gives me an idea. Thank you. Time is also valuable so that makes it tempting. I think I was misunderstanding the bill. It's a little ambiguous. My dad said it makes so much sense to the people who make the wording for the online system that maybe they can't see it from a normal member of publics eyes. I can make it more clear without any more words and they will be smarter than me. If I get time I'll come back and write down a few helpful points I've gleaned.

Thank you all (-:

[royaloak]

You are not paying all of it EACH January 31st, only January 31st 2020 (for complete tax year to 5th April 2019, so effectively 9 months in arrears) as that is the changeover year.

 

After that you pay half your expected tax to 5th April 2020 by 31st January 2020 (which is effectively 3 months in advance of the end of the tax year) and the remainder by 31st july 2020 (effectively 3 months in arrears), then your tax to 5th April 2020 is paid,

 

Then, by 31st January 2021 you pay half your expected tax to 5th April 2021 (3 months in advance of the end of that tax year) and the remainder by 31st july 2021 (effectively 3 months in arrears of that tax year)

 

Then by 31st January 2022 you pay half your expected tax to 5th April 2022 (3 months in advance of the end of that tax year) and the remainder by 31st july 2022 (effectively 3 months in arrears of that tax year) etc etc.

 

So instead of paying ALL your tax as one lump sum 8 months in arrears you will now pay half 3 months in advance (by January 31st in the year ending on the 5th April) and the rest 3 months in arrears (by 31st July relating to the previous 5th April), at least that is how I read it.

Edited January 15, 2020 by royaloak

[Jonboy]

With accountants the bill will depend on what you give them, give them a nice clean list of sales and purchases, that match your bank, etc and the tax calculations will be quick, low cost and reliable. Give them a shoebox of receipts, unclear sales and you will pay for the time to get it organised

 

Also, start looking for next years filing in the spring as they will generally charge a premium this close to filing day, if they can fit you in at all.

 

(accountants have chatrooms too  )

[How about a Dictator Loco Class?]

Tax return Jan 2020.xlsx

 

I've converted the Tax return earnings spreadsheet that I made from a 'Numbers' spreadsheet format, to an XL format so others can hopefully use it. It automatically totals each months takings. It may be of use to the odd few people out there and save you a bit of time. It doesn't hurt to share it (-:

(click the link above)

[meil]

It's as it says - it's tax paid on account. If you are using the online tax submission on HMRC web site then it should calculate it for you.

 

In essence HMRC assume that you will earn next year what you earned this year and therefore you pay half that assessment now and the other half later on (can't remember the dates).

 

You don't really need an accountant to do that.

 

If you know that you will not earn as much next year (retiring etc) you can apply to not pay the "on account" - form on HMRC web site.

 

I assume you are accessing HMRC through the government gateway.

Edited January 15, 2020 by meil

[admiles]

2 hours ago, meil said:

It's as it says - it's tax paid on account. If you are using the online tax submission on HMRC web site then it should calculate it for you.

 

In essence HMRC assume that you will earn next year what you earned this year and therefore you pay half that assessment now and the other half later on (can't remember the dates).

 

You don't really need an accountant to do that.

 

If you know that you will not earn as much next year (retiring etc) you can apply to not pay the "on account" - form on HMRC web site.

 

I assume you are accessing HMRC through the government gateway.

 

Do you know what the "apply to not pay the on account" form is called or numbered by any chance?

 

My partner is giving up renting her house out just because of the hassle of having to do a tax return. Having to pay 50% of next years was the final straw.

[eastglosmog]

Got mine finished today - Yippee!!

[Bernard Lamb]

19 minutes ago, eastglosmog said:

Got mine finished today - Yippee!!

Why leave it so long?

I make a habit of getting everything done in August.

I find you get a very quick response if you send in the return when a lot of people tend to be on holiday and the tax office is not too busy.

Bernard

[steve1]

Get yourself a good Tax Accountant and they will sort it for you.

 

Mind you, it's not actually necessary to marry one, which is what I did...

 

steve

[eastglosmog]

51 minutes ago, Bernard Lamb said:

Why leave it so long?

I make a habit of getting everything done in August.

I find you get a very quick response if you send in the return when a lot of people tend to be on holiday and the tax office is not too busy.

Bernard

Because I habitually procrastinate on these things!

[The White Rabbit]

On 15/01/2020 at 17:28, admiles said:

 

Do you know what the "apply to not pay the on account" form is called or numbered by any chance?

 

 

No, but near the end of the return there is a section where you can vary the payments on account (POA), from memory you have to insert the figure you believe the POAs should be. If things change after you have submitted the return, you can either write in or phone the helpline and they can change it for you. (But make sure you don't reduce it by too much or you'll be charged interest if it turns out your liability is higher than your amended figure).

 

 

[sharris]

If you are above the payment on account threshold you should only end up paying 150% of your first tax bill by Jan 31 (and another 50% in July).

 

However, in subsequent years what happens when I fill in my return is that the immediately calculated amount is always the taxable amount for the year plus the payment on account (I.e. It doesn't immediately seem to take into account previous 'on account' payments).

 

What I do is submit my return with plenty of time to spare, leave it a few days to get processed and then go back in and pay - by that time any 'on account' balance from last year should have been taken into account and the amount due (assuming your earnings don't change that much) should now mostly be the on account amount for the next year as it will have registered the current return as being paid off - of course if your earnings change from year to year your on account amount might not cover, or might overestimate your return.

 

Of course, being 30th Jan now, it's a bit late to wait a few days to process if you've not done it yet - you'll have look at your payment history and work out the on-account difference yourself!

Edited January 30, 2020 by sharris