Self employment- why am I paying almost twice the tax I did last year?!

[WhatTheKey]

Am in a bit of a panic. I'm self employed and am lucky as I have consistently made about 80k a year for the last few years. I do my own tax return online and always pay about 20k in tax. But I've just done mine now and it's asking for 38k! That includes a payment on account for next year, but I'm confused... wouldn't I have made a payment on account last year too, and all the other years?!
I have the money but it's still a hell of a shock!

Isn't there a calculation on the tax return which breaks it down?

I believe the figure they quote is the total figure you owe but doesn't take into account the money you will have paid on account last January or in July in advance for this year

If you click on make a payment - see what amount it is requesting there.

Sorry if I'm wrong but this sounds similar to me last year when I panicked.

If you’ve only done it today the calculations probably haven’t completed yet, it always takes a day or two.

You need to look at the calculation. I use industry software rather than the HMRC website to prepare returns but we get a computation showing how it's been calculated. You need to know how much your liability is, wether your Payments on Account have been deducted and wether your payments on account for next year have been added.

In this day and age, I am amazed that it is not possible for tax calculations on self assessment to be completed in real time or at least to acknowledge what you have already paid on account for the year.

Thank you, I just did this. One part of the HRMC says I've made an overpayment of 5k last year, and that they'll set this against this year's tax- but that isn't part of the calculation at all. 38k is nearly half of my earnings!

I dont know how the HMRC portal works unfortunately. When we log into our agent portal we can see a lot of detail which would help clear this up. Unfortunately it sound alike in an effort to try to keep it simple HMRC are limiting what you can see and therefore making it hard to work out what's going on.

You're spot on. I just went to pay and it said I was 5 grand in credit and had no tax to pay... So it hasn't updated yet. It will still be 33k though, 13k more than last year, which I don't understand at all. It's a massive percentage of my income (and I don't mind paying tax!)

This! Confused the heck out of me initially- same as you @WhatTheKey I was thinking how the hell can it be that!

Depending on your year end, you may be affected by Basis Period Reform for the 2023/24 tax year - HMRC guide here

The tax hasn’t increased that much since last year! I’m sure when I do my husbands return it shows the calculation. Can you see how it’s been worked out? Then you can see what’s gone wrong/if you’re looking at future payments too

The online calculation doesn't take the payments you've made on account this year into account.

Deduct these from what it says you need to pay and you'll find it's a lot nicer a balance!

This! I've been stung too. They've changed the accounting period and you're essentially paying more than a year in one go. It sucks.

I'm told there is a discretionary scheme to pay off in installments but I don't know how.

Do you use an accountant? 'They' can't change your accounting period, you have to. If OP hasn't entered trade income and expenditure for a long accounting period then they won't have worked the tax out on a long accounting period. I would assume OP might have mentioned it if she was accounting for a longer period in her tax return.

You can spread the tax on your transition profits over 5 years but again unfortunately I don't know how you would do that without using the agent software we use. Maybe give them a call.

"They" being HMRC have changed the reporting period for people who's year end was not standard. My year end was July. So I have to account past July 2023 where it should have been up to May 2024.

Not sure if you were asking me or OP but yes I have an accountant.

I understand that but 'they' will work out you tax based on the information you enter. Unless OP has extended her year end and input the figures based on this it won't be the reason her tax is different and I feel like OP would probably have mentioned this when she was trying to work out why her tax was higher.

Me, too.
i couldn’t find anywhere in the portal to try to reduce the balance of tax paid on account, so I paid it all up front… hoping I don’t need to pay any July 25.
i have a note my diary to go back and check in March and maybe call HMRC.

I will have to do this. Bloody hell. Am very grateful that I didn't book the holiday I was planning this year!

Not affected by this personally, but thanks for sharing.

You're welcome

Overlap relief may also be relevant for people with transition profits

I get confused (horrified!) by this every year, and I'm pretty sure that every year I realise that the figure doesn't count the payment on account you've already made. Check what you paid- if you deduct the payment on account, does it sound more like what you were expecting?

You should get a figure which shows how much tax you owe for the year. Which should be similar to last years? It shows how it is calculated and your tax allowance, Tax and NI amounts.

You’ll probably have already paid about half of it.

You need an accountant..

Have you made payments on account this year?

I had this a few times, all very alarming. Like other people said, it’s because it doesn’t take into account what you’ve paid on account.