Tax reurn woes!
Discussion
Helping my friend do her tax return for 06-07. We have calculated a return well above what she can afford to pay (she blew all her profits on half a year travelling!) at the moment - I think she underestimated how much it would be.
What is the possibility of deferring any amounts to the IR? She will not pay much tax for 07-08 as this was the period of travelling and she will not have much income - will they buy this if we claim that very little tax will be paid next year?
Otherwise loan, bank of unimpressed mum, selling car/body are the only options.
What is the possibility of deferring any amounts to the IR? She will not pay much tax for 07-08 as this was the period of travelling and she will not have much income - will they buy this if we claim that very little tax will be paid next year?
Otherwise loan, bank of unimpressed mum, selling car/body are the only options.
I am not an accountant but I don't think you can offset a previous years tax bill against the future of owing less unless it's a small amount that could be collected through the coding.
It's prudent when you make a profit to spend a few pounds with an accoutant to understand what your liability is likely to be and put it too one side.
It's prudent when you make a profit to spend a few pounds with an accoutant to understand what your liability is likely to be and put it too one side.
The point I was trying to establish is - how much of the January 2008 tax payment is made up of the 1st 2007/08 Payment on Account?
For many Self Assessment tax payers, the January 2008 payment will be made up of two elements -
the balance remaining on the 2006/07 tax liability
the 1st tax Payment on Account for 2007/08
If it is appropriate, you are allowed to reduce the Payments on Account to a lower level. Examples of situations when you can do this are:
your Self Assesment income levels for the next tax year are going to be reduced
your business profits have declined
you have additional tax allowances next year
you intend to pay or have already paid more into a pension fund between 6 April 2007 and 5 April 2008.
Do any of these situations apply in this case?
To be able to pay Self Assessment tax bills through PAYE tax codings you need to have a PAYE taxed source of income (e.g. salary or pension). Many Self Assessment tax payers do not have any PAYE taxed income.
To be honest, most Self Assessment tax payers who have the option of paying their Self Assessment tax through the PAYE Coding prefer not to do so as they do not like the PAYE Codings being messed about with by the Revenue and are usually happy to pay the Self Assessment tax liability directly.
For many Self Assessment tax payers, the January 2008 payment will be made up of two elements -
the balance remaining on the 2006/07 tax liability
the 1st tax Payment on Account for 2007/08
If it is appropriate, you are allowed to reduce the Payments on Account to a lower level. Examples of situations when you can do this are:
your Self Assesment income levels for the next tax year are going to be reduced
your business profits have declined
you have additional tax allowances next year
you intend to pay or have already paid more into a pension fund between 6 April 2007 and 5 April 2008.
Do any of these situations apply in this case?
To be able to pay Self Assessment tax bills through PAYE tax codings you need to have a PAYE taxed source of income (e.g. salary or pension). Many Self Assessment tax payers do not have any PAYE taxed income.
To be honest, most Self Assessment tax payers who have the option of paying their Self Assessment tax through the PAYE Coding prefer not to do so as they do not like the PAYE Codings being messed about with by the Revenue and are usually happy to pay the Self Assessment tax liability directly.
Edited by Eric Mc on Sunday 13th January 12:42
Legend83 said:
Eric - the final liability includes the balance for 06/07 and the first payment on account for 07/08. It is highly likely she will have reduced profits for assessment in 07/08 as she was only earning for half the year.
Can she only reduce her POAs rather than defer the lot?
You can only reduce the payments on account. You could of course reduce these as much as you like, but interest will be payable on the underpaid amount. Could you not do estimated profits to 5/4/08, then work out the payments on account for the next period, that would give you a good idea of what to reduce them to?Can she only reduce her POAs rather than defer the lot?
As a side note, I have a client who did the same thing last year (travelling) and couldn't pay her bill. She informed the IR and they came to an arrangement to pay off over the next few months, obviously interest still accrued, but they can be accomodating at times.
As has been said, the Revenue can be quite sympathetic to taxpayers who have a bona fide problem in paying their tax liabilities. However, they tend to restrict any instalment agreements to six months - and they will charge interest on overdue amounts.
Another point that this taxpayer needs to be aware of is, if there is any element of the 2006/07 tax liability still outstanding at 28 February 2008, a flat 5% Surcharge will be added on to this remaining liability. Interest will then be charged on the unpaid Surcharge element of the liability until it too is cleared.
Did the taxpayer use an accountant?
Did the taxpayer make use of all the Personal Allowances, Capital Allowances and Allowable Business Expenses she might have been entitled to?
In other words, how correctly was her 2006/07 tax liability actually calculated.
Would it warrant a re-look?
Another point that this taxpayer needs to be aware of is, if there is any element of the 2006/07 tax liability still outstanding at 28 February 2008, a flat 5% Surcharge will be added on to this remaining liability. Interest will then be charged on the unpaid Surcharge element of the liability until it too is cleared.
Did the taxpayer use an accountant?
Did the taxpayer make use of all the Personal Allowances, Capital Allowances and Allowable Business Expenses she might have been entitled to?
In other words, how correctly was her 2006/07 tax liability actually calculated.
Would it warrant a re-look?
I calculated it all for her - all capital allowances and expenses in. We used the % business use method for her deductions from profit and I am pretty sure it is right.
I will give her a call tonight to relay all this information - will they charge interest at base rate +1 or something?
I will give her a call tonight to relay all this information - will they charge interest at base rate +1 or something?
Legend83 said:
I calculated it all for her - all capital allowances and expenses in. We used the % business use method for her deductions from profit and I am pretty sure it is right.
I will give her a call tonight to relay all this information - will they charge interest at base rate +1 or something?
Just make up some more expenses?I will give her a call tonight to relay all this information - will they charge interest at base rate +1 or something?
Only joking
Currently 7.5%
Her trade is art direction/set design for TV programme's (did the set design for the recent Sense and Sensibility on BBC1). She bought some tools in the year (hammers etc.), but we put them all through expenses - should I split these out for capital allowances? We considered whether they could be used again and concluded that some were specific to certain jobs/projects. Pooling them would make her liability worse.
I agree. I'd leave them where they are. If you capitalised them and claimed Capital Allowances, you would get LESS tax relief, not more.
It sounds like you've covered the main areas so I think the best bet is to preview the year to 5 April 2008 and, if it looks like the income levels are down, estimate the reduced tax liability for 2007/08 and then apply to have the 2007/08 Payments on Account reduced accordingly.
This can be done on the face of the 2006/07 Self Assessment tax return and/or on a special form called an SA303. I normally complete both.
If at all possible, try and clear the 2006/07 element of the 31 January 2008 payment before 28 February 2008 as that will ensure the 5% surcharge is not levied.
It sounds like you've covered the main areas so I think the best bet is to preview the year to 5 April 2008 and, if it looks like the income levels are down, estimate the reduced tax liability for 2007/08 and then apply to have the 2007/08 Payments on Account reduced accordingly.
This can be done on the face of the 2006/07 Self Assessment tax return and/or on a special form called an SA303. I normally complete both.
If at all possible, try and clear the 2006/07 element of the 31 January 2008 payment before 28 February 2008 as that will ensure the 5% surcharge is not levied.
Edited by Eric Mc on Monday 14th January 12:09
Eric Mc said:
I agree. I'd leave them where they are. If you capitalised them and claimed Capital Allowances, you would get LESS tax relief, not more.
It sounds like you've covered the main areas so I think the best bet is to preview the year to 5 April 2008 and, if it looks like the income levels are down, estimate the reduced tax liability for 2007/08 and then apply to have the 2007/08 Payments on Account reduced accordingly.
This can be done on the face of the 2006/07 Self Assessment tax return and/or on a special form called an SA303. I normally complete both.
If at all possible, try and clear the 2006/07 element of the 31 January 2008 payment before 28 February 2008 as that will ensure the 5% surcharge is not levied.
Thanks Eric - sound advice.It sounds like you've covered the main areas so I think the best bet is to preview the year to 5 April 2008 and, if it looks like the income levels are down, estimate the reduced tax liability for 2007/08 and then apply to have the 2007/08 Payments on Account reduced accordingly.
This can be done on the face of the 2006/07 Self Assessment tax return and/or on a special form called an SA303. I normally complete both.
If at all possible, try and clear the 2006/07 element of the 31 January 2008 payment before 28 February 2008 as that will ensure the 5% surcharge is not levied.
Edited by Eric Mc on Monday 14th January 12:09
Eric Mc said:
I agree. I'd leave them where they are. If you capitalised them and claimed Capital Allowances, you would get LESS tax relief, not more.
It sounds like you've covered the main areas so I think the best bet is to preview the year to 5 April 2008 and, if it looks like the income levels are down, estimate the reduced tax liability for 2007/08 and then apply to have the 2007/08 Payments on Account reduced accordingly.
This can be done on the face of the 2006/07 Self Assessment tax return and/or on a special form called an SA303. I normally complete both.
If at all possible, try and clear the 2006/07 element of the 31 January 2008 payment before 28 February 2008 as that will ensure the 5% surcharge is not levied.
Thanks Eric - sound advice.It sounds like you've covered the main areas so I think the best bet is to preview the year to 5 April 2008 and, if it looks like the income levels are down, estimate the reduced tax liability for 2007/08 and then apply to have the 2007/08 Payments on Account reduced accordingly.
This can be done on the face of the 2006/07 Self Assessment tax return and/or on a special form called an SA303. I normally complete both.
If at all possible, try and clear the 2006/07 element of the 31 January 2008 payment before 28 February 2008 as that will ensure the 5% surcharge is not levied.
Edited by Eric Mc on Monday 14th January 12:09
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