Owing HMRC income tax once only.
Discussion
Made up figures but the principle remains;
For this tax year (19/20) I owe HMRC £10,000 in unpaid income tax (through no fault of mine).
By 31/01/21 I have to pay 50% of that (£5,000).
The remaining 50% is due 31/07/21.
All good so far,
However, HMRC now assumes that I'll owe them £10,000 next tax year (20/21) and kindly adds £5,000 of that to the amount that I have to pay by 31/01/21, making that £10,000 with £5,000 still to pay by 31/07/20.
They're wrong.
So how do I correct them on this?
I'd rather not spend 60mins on hold to then get cut off as soon as they answer.
TIA.
.
For this tax year (19/20) I owe HMRC £10,000 in unpaid income tax (through no fault of mine).
By 31/01/21 I have to pay 50% of that (£5,000).
The remaining 50% is due 31/07/21.
All good so far,
However, HMRC now assumes that I'll owe them £10,000 next tax year (20/21) and kindly adds £5,000 of that to the amount that I have to pay by 31/01/21, making that £10,000 with £5,000 still to pay by 31/07/20.
They're wrong.
So how do I correct them on this?
I'd rather not spend 60mins on hold to then get cut off as soon as they answer.
TIA.
.
If you are doing this via a self assessment tax return then there is a section towards the end that allows you to request for reduced "payment on account".
In effect, you're telling them that you will not owe them the same amount next year so don't ask me for payment on account for the following year.
https://www.gov.uk/government/publications/self-as...
In effect, you're telling them that you will not owe them the same amount next year so don't ask me for payment on account for the following year.
https://www.gov.uk/government/publications/self-as...
Eric Mc said:
You can reduce the payment on account down to an appropriate level - which could be Nil. However, only reduce the payment on account if you are sure that the actual tax liability arising for that year is less than it was for the previous year.
This ^^.Otherwise you could find yourself getting another bill from HMRC.
Ask me how I know
rfisher said:
Made up figures but the principle remains;
For this tax year (19/20) I owe HMRC £10,000 in unpaid income tax (through no fault of mine).
By 31/01/21 I have to pay 50% of that (£5,000).
The remaining 50% is due 31/07/21.
All good so far,
However, HMRC now assumes that I'll owe them £10,000 next tax year (20/21) and kindly adds £5,000 of that to the amount that I have to pay by 31/01/21, making that £10,000 with £5,000 still to pay by 31/07/20.
They're wrong.
So how do I correct them on this?
I'd rather not spend 60mins on hold to then get cut off as soon as they answer.
TIA.
.
Is your time worth 5 bags an hour?For this tax year (19/20) I owe HMRC £10,000 in unpaid income tax (through no fault of mine).
By 31/01/21 I have to pay 50% of that (£5,000).
The remaining 50% is due 31/07/21.
All good so far,
However, HMRC now assumes that I'll owe them £10,000 next tax year (20/21) and kindly adds £5,000 of that to the amount that I have to pay by 31/01/21, making that £10,000 with £5,000 still to pay by 31/07/20.
They're wrong.
So how do I correct them on this?
I'd rather not spend 60mins on hold to then get cut off as soon as they answer.
TIA.
.
rfisher said:
Made up figures but the principle remains;
For this tax year (19/20) I owe HMRC £10,000 in unpaid income tax (through no fault of mine).
By 31/01/21 I have to pay 50% of that (£5,000).
The remaining 50% is due 31/07/21.
All good so far,
However, HMRC now assumes that I'll owe them £10,000 next tax year (20/21) and kindly adds £5,000 of that to the amount that I have to pay by 31/01/21, making that £10,000 with £5,000 still to pay by 31/07/20.
They're wrong.
So how do I correct them on this?
I'd rather not spend 60mins on hold to then get cut off as soon as they answer.
TIA.
.
So if this was for tax year 19/20 then you must submit a paper return by the end of this month, if online then 31/01/21.For this tax year (19/20) I owe HMRC £10,000 in unpaid income tax (through no fault of mine).
By 31/01/21 I have to pay 50% of that (£5,000).
The remaining 50% is due 31/07/21.
All good so far,
However, HMRC now assumes that I'll owe them £10,000 next tax year (20/21) and kindly adds £5,000 of that to the amount that I have to pay by 31/01/21, making that £10,000 with £5,000 still to pay by 31/07/20.
They're wrong.
So how do I correct them on this?
I'd rather not spend 60mins on hold to then get cut off as soon as they answer.
TIA.
.
Now for the not so good news - you would usually need to pay it in full by 31/01/21 or you will get a fine, however because of Covid I believe they have added some flex to this. As others have said - when you get to the end of the submission it will ask you if you wish to make an adjustment, you then put down £0.00 so that will sort it out for you. Always worth giving them a call to confirm - they are super helpful AND now answer the phone very quickly - certainly under 15mins.
Good luck.
HMRC webchat works well, only downside seems to be you don't go in the queue as such, so don't get a notification beep when someone is waiting for you. It's just that the link becomes available and you click on it, if you are not watching constantly then you keep missing it.
Had the same situation a few years ago, had to pay about 4k in unpaid tax due to a previous employer insisting on continuing to pay me and refusing to respond to all contact about paying it back. I paid the bill as a lump sum as soon as I completed my self assessment. HMRC promptly stuck the same sum in as income for the next year as well and told me I would have to make payments on account. Simply told HMRC that the liability was a one off and would not be repeated and they removed it from my tax code for the next year. Only sticky moment was the advisor stating that if I did somehow end up with a large tax bill again they could fine me and charge interest. I asked if the call was being recorded (it was) and stated that the previous payment was outside my control, and if similar was to happen again then it would still be outside of my control and I didn't think HMRC could fine people for the mistakes of others.
(worth adding that my only income is PAYE and I do self asssessment every year so any mistakes, mine or others are always dealt with promptly)
Had the same situation a few years ago, had to pay about 4k in unpaid tax due to a previous employer insisting on continuing to pay me and refusing to respond to all contact about paying it back. I paid the bill as a lump sum as soon as I completed my self assessment. HMRC promptly stuck the same sum in as income for the next year as well and told me I would have to make payments on account. Simply told HMRC that the liability was a one off and would not be repeated and they removed it from my tax code for the next year. Only sticky moment was the advisor stating that if I did somehow end up with a large tax bill again they could fine me and charge interest. I asked if the call was being recorded (it was) and stated that the previous payment was outside my control, and if similar was to happen again then it would still be outside of my control and I didn't think HMRC could fine people for the mistakes of others.
(worth adding that my only income is PAYE and I do self asssessment every year so any mistakes, mine or others are always dealt with promptly)
Eric Mc said:
And they will charge interest on late payments if you over-reduced the payments on account.
^^^ This. IIRC they currently charge interest at 2.6%. You'll be paying it out of taxed income so that's about 4x what you can earn at the bank and it will be a l-o-n-g time before the over reduction works its way through the system.
Safest to err on the side of caution in your calculations. And if you realise later that you've accidentally over-reduced don't sit on your hands. Tell HMRC asap.
I never fully understood payment on account? Why am I loaning the hmrc half of my unearnt income tax for free? The only reasoning I have ever received from one of their advisors was to "imagine it as helping me out the next year".. Yet it doesn't? It burdens me in the first year by having to pay a 150% tax bill. Or am I understanding it wrong?
If it happened the other way around hmrc would expect interest.
If it happened the other way around hmrc would expect interest.
Normal tax year runs from April to April so when you have to pay the tax in January you have had 8 months of income for which you have not paid tax as is part of a new tax year so, in theory, if you saved the tax as you earn you should have no issues paying into account. If you don’t save tax money every month than that can be more difficult.
Payments on Account are actually paid in the tax year to which the tax relates - for example, Payments on Account for tax year 2020/21 would be paid in July 2020 and January 2021. On that score, you are not paying tax in advance, you are paying tax within the related tax year.
However, they are a very rough and ready estimate of the true liability, which for many people, can only be correctly ascertained once the tax year is actually over.
And that is why HMRC has always included the option of being able to reduce the Payments on Account if you feel they are going to be excessive.
However, they are a very rough and ready estimate of the true liability, which for many people, can only be correctly ascertained once the tax year is actually over.
And that is why HMRC has always included the option of being able to reduce the Payments on Account if you feel they are going to be excessive.
People in PAYE are "pay as you go" taxpayers. All things being equal they are up to date with tax every month through the year have nothing to pay at the end.
A new taxpayer in self assessment (typically self-employed) has income arising in a year from 6 April to 5 April and pays no tax at all during that year.
After the year end they fill in a tax return and HMRC calculates the tax due.
Their tax must be paid by the end of the following January.
This taxpayer gets between 9 and 21 months of interest free loan from the government compared with the position of someone in PAYE.
The following year HMRC says, "lets assume the same income pattern is going to arise again". So rather than waiting 9-21 months for their money they want you to pay 50% of your likely tax liability 3 months before the end of the year - i.e. in January. The other half you can still hold onto until July and then any additional tax due is payable at the end of the following January, bringing things to the same end position as in year 1.
The effect of Payments on Account is that about 50% of your overall tax liability is paid 75% of the way through the year - still a better position than people in PAYE.
The mechanism for reducing Payments on Account is designed to accommodate people who can be sure their income for the full year will have gone down.
A new taxpayer in self assessment (typically self-employed) has income arising in a year from 6 April to 5 April and pays no tax at all during that year.
After the year end they fill in a tax return and HMRC calculates the tax due.
Their tax must be paid by the end of the following January.
This taxpayer gets between 9 and 21 months of interest free loan from the government compared with the position of someone in PAYE.
The following year HMRC says, "lets assume the same income pattern is going to arise again". So rather than waiting 9-21 months for their money they want you to pay 50% of your likely tax liability 3 months before the end of the year - i.e. in January. The other half you can still hold onto until July and then any additional tax due is payable at the end of the following January, bringing things to the same end position as in year 1.
The effect of Payments on Account is that about 50% of your overall tax liability is paid 75% of the way through the year - still a better position than people in PAYE.
The mechanism for reducing Payments on Account is designed to accommodate people who can be sure their income for the full year will have gone down.
tejr said:
Yep I get that part.
I just didn't understand why, in year 1, you settle your account for the year that has passed, but don't do the same thing for year 2, where you settle 6 months in advance.
It's not in advance. The first instalment is 4 months into the relevant tax year and the second 2 months before the end of the relevant tax year.I just didn't understand why, in year 1, you settle your account for the year that has passed, but don't do the same thing for year 2, where you settle 6 months in advance.
They are not "advance" payments - they are" in year" payments.
If you feel that the payments are too high or not required, you are completely at liberty to reduce them or even cancel them altogether - as explained above.
tejr said:
I never fully understood payment on account? Why am I loaning the hmrc half of my unearnt income tax for free? The only reasoning I have ever received from one of their advisors was to "imagine it as helping me out the next year".. Yet it doesn't? It burdens me in the first year by having to pay a 150% tax bill. Or am I understanding it wrong?
You have misunderstood what's going on with the payments on account.You will be paying your taxes at least 3 months in Arrears.
It's easier to see this in the example below.
April 2019 - Imagine you quit your salaried PAYE job and became self employed on the 5 April 2019. You are now responsible for paying your 2019/20 taxes via the Self Assessment Tax Return system.
However your first Self Assessment Tax Return is not required for 21 months so you have to be responsible and put your due taxes in a saving account.
Jan 2021 (9 months after the 2019/20 year has Ended)
You complete your 1st Self assessment tax return for 2019/20.
You pay your due taxes for 2019/20
Jan 2021 (9 months after the 2020/21 year has Started)
You pay your 1st payment on account (6 months of taxes) for 2020/21 on the assumption that your earning will be the same as 2019/20
July 2021 (3 months after the 2020/21 year has Ended)
You pay your 2nd tax payment on account for 2020/21 on the assumption that your earning will be the same as 2019/20
Jan 2022 (9 months after the 2020/21 tax year has Ended)
You complete your Self assessment tax return for 2020/21
You pay your due taxes for 2020/21 LESS your payments on account. If your income is stable (the same year after year) then this will be Zero.
Jan 2022 (9 months after the 2021/22 tax year has Started)
You pay your 1st tax payment on account for 2021/22 on the assumption that your earning will be the same as 2020/21
April 2022 Imagine you won the lottery, you put the money under your mattress and you retire to live off this money.
July 2022 (3 months after the 2021/22 year has Ended and you have Retired)
You pay your 2nd tax payment on account for 2021/22 on the assumption that your earning will be the same as 2020/21
Jan 2023 (9 months after the 2021/22 tax year has Ended and you have Retired)
You complete your Self assessment tax return for 2021/22.
You pay your due taxes for 2021/22 LESS your payments on account
Jan 2023 (9 months after the 2022/23 tax year has Started)
You tell HMRC to reduce your payment on account for 2022/23 to Zero as you have no income for this year.
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