UKH

Help pls.. 

I did my 22/23 tax return in January as usual. It was higher this year for one off reasons. I got the calculation and paid the bill. Then I got a message saying I had failed to pay a bill for payment on account for 23/24. Apparently they want half the tax for the next year up front and the other half in July!

Thing is, they didn’t tell me this when I did my return, or at any point since, until this overdue notice arrived (with threats of court and interest charges)!

so three questions.. why have they done this now, and not previously? Why didn’t they tell me they wanted the money? Given my tax bill will be much lower again for 23/24 how do I deal with this? Do I have to pay it and then apply for a rebate once the 23/24 return is in? 

thanks for any advice!

mm

If you did your self-assesement online, it does tell you what the 'payment on account' scam will cost you, and there also is a section with a box where you can propose how much you'd rather be shafted with and your reasons why.

As it's too late for that, you probably have to pay it and then yes, next year when you do your tax, return if it comes as you paid too much tax, you can go through the process of asking for the remainder back.

I'd still contact HMRC see what they  say. They tend to be quite reasonable and helpful if it's in their hands

Thanks

Maybe there was something online, but my pdf calculation, which I downloaded at the time And based my payment on didn’t mention it.. I’ve just checked! 
that seems pretty unreasonable to me.. esp as I’ve never had this before.
I guess it kicks in at some threshold that I exceeded this year because of the one off interest from having a house worth of cash for a few months..?

Weird, when it first came up for me it was obvious and i stared at it dumbfounded for ages thinking 'what sort of evil bastard would devise and implement such a blatant theft of a scheme?" unable to hit the 'send' button. Then i found the get out of jail section and told them i'd pay them a grand total of £0 as a payment on account. Not sure if anyboody reads it and approves it, but i heard nothing back.

It kicks in when your tax bill is over £1000 i think it is, besides anything you have already paid before in deductions, etc

I think the argument is you aren't actually paying in advance, just paying "as you go".  If you paid everything after the tax year has finished and tax return submitted, you could actually be paying about 18 months after the event.

Yes, agreed.  My payment on account January is for tax year 23/24 and we are 3/4 of the way through that!

Get next years return in quickly before July if you are likely to not need to pay this much tax for the next year and so avoid the 2nd half being as big. Payment on account works well if your income is even, but can be painful otherwise. 

Only if the assumption that next year you will make the same profit a you did last year is true.

Doesn't work for people whose income have up and downs, which means on your down year you will have to pay as if you were having an up year (so not only you already have a reduced income but you also have to find money to pay for tax you do not owe and will not owe) and which you only get back after your tax return (hence you have paid 'in advance') even if it's glaringly obvious your turnover isn't even close to it (you cant file a tax return yet for the year which is when your tax lliabilities are set, hence, you are paying 'in advance')

Pariculary machiavelian when you are already getting tax deducted via other means such as CIS, etc. So HMRC is already taking a 20% of your gross turnover at source, plus you have to pay another ~20% on top on that years income, which if you couple it with a down year it means not only you have a reduced income, but you have to give away >40% of it to HMRC until such a time you can file a self-assesement to claw some of that money back.

The whole scheme is messed up

So you’re saying if I file 23/24 as soon as possible (late April realistically) then I can avoid the July payment?

Although in the reverse case you "win" so over time it evens out. The odd spike year I can see is tricky, but it sounds like you can make a case for that.

Mmmmh... In the reverse case you still have to pay the tax owed, so there's not really 'win'. Paying it at a later date doesn't offer advantages as that money sits untouched earmarked for tax, so it just sits there a little longer. Unless you are ballsy or optimistic and use it for cashflow which is risky and guaranteed to bring you pain sooner or later.

In fact, another delightful experience of the 'payments on account' scheme is when you dutifully put ~20% aside for tax, and then a change of circumstances puts you on its sights and when it comes payment time you now have to pay 30% instead (20 for last year and half again for next year). Always a laugh

Dunno about the other aspects but the income tax approach doesn't seem too terrible to me.

If you were self employed with variable income you might not agree.

To mininmike, read the small print on reducing payments on account, if you overcook it , interest will be charged.  Good earlier advice about getting your tax return in asap. Also if you are proposing to reduce your payments on account , iirc you need to get it approved by hmrc so allow a month or so.

If you owe no tax then yes.  You can also ask for the payment to be smaller if you can explain why it will be so. 

I got caught out a few years ago (before corporation) as one of my big customers had a chaotic reorganisation and ended up paying me months late, making the tax very uneven - the payment on account was ridiculous. We were not quick enough to sort this as were hugely busy despite the accountants advice. However since then we employed someone who had been self-employed and they successfully got their payment in account reduced hugely.

When you submit your tax return online, it takes a day or two for the correct amount to appear in the "how much do you owe"* section.  That will break it down into amounts for payment at the end of January and then for end of July.

Whilst you can apply to pay less on account, they will charge you interest on anything that is underneath the "correct" amount.

I would go for paying what they ask for and end up being delighted if you get a refund the following year.

* not its real name

I don't fully understand how you've gone wrong here. Nevertheless, if you overpay, it will come out in the wash. Granted, that may be inconvenient for current cash flow. HMRC are not there to ruin you. Contact them.

I think I now know what happened..

Where I went wrong is that I was completely unaware this even existed. I only do tax returns to cover a small amount of rental income on a flat. It seems I have previously flown below a threshold for ‘on account’ payments. That year due to selling our house and not buying one at the same time, 200k sat in an account earning interest for 6 months, which I declared and took me over the unknown threshold. Because I didn’t know about this, I didn’t spot that part of the form and paid my tax bill immediately on completing my return as usual, and thought nothing more of it. I earn salary via PAYE so I only engage with my tax account once a year.. until now!

I owed more tax, and paid it happily enough. What is annoying is that they assumed I’d earn the same interest this year (I didn’t, we bought a new house!) and I have to pay tax as if I had..

thanks all for the info

Which is a ridiculous argument because the benefit to HMRC would only have lasted the first year they introduced on-account payments, after that the flow of tax revenue would have remained the same. A much more logical thing to do would be to ask companies to do semi-annual returns, but instead they chose the long term weather forecast tax model instead. 

At the time it was introduced, I recall thinking it was one of " Gordon Browns clever schemes" for a nice cashflow boost at the expense of the self employed.

On the other hand, CIS and payments on account are a way to reduce non payment of due tax by folk going awol or bust.

Which is what they do in the Usa for company’s. Quarterly and if you make a mistake in your figures you get fined etc. bit of an eye opener when you compare with other tax systems.