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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

To ask a self employed tax question?

24 replies

Fannydango · 09/09/2018 23:02

I do my own tax returns. I reduced my payments on account last year for 2017/18 as I was going to earn less in that financial year.

Turns out I reduced them too much and will be short by about £1500. This was genuinely done in error (and, yes, a bit of stupid ignorance). I can’t find accurate information on what the penalty will be other than “interest” on the underpayment. Anybody know what the interest will be?
I’ve never made an error like this before and I’m not on big bucks at all (just over £20k for this year).

OP posts:
theycallmebabydriver · 09/09/2018 23:18

It's currently 3.25% of the underpayment calculated from the due date.

E.g. if it was 90 days past the date it should have been paid you will pay 1500 3.25% (90/365)

Anonymumtum · 09/09/2018 23:20

I have never known anyone charged a penalty for reducing PoAs too far, only interest.

Ethylred · 09/09/2018 23:48

Why do people ask randoms on the internet for technical advice?

BMW6 · 09/09/2018 23:58

Perhaps because some of them work for HMRC?

Original poster
Fannydango · 10/09/2018 00:10

Oh bugger, so I need to file my return for 17/18 bloody pronto then as I’m incurring interest every day?! Arrrrgghhh!!! Think I might cry!!

Ethelred, I’m asking “randoms” because I’m struggling to find the answer on the HMRC website.

OP posts:
Wandastartup · 10/09/2018 00:12

You can pay what you owe today even if you’ve not filed your return yet.

Original poster
Fannydango · 10/09/2018 00:12

Double-bugger - the due date would have been 31st Jan 2018 wouldn’t it??!!! So that’s about 200 days late!!!!!!

OP posts:
Original poster
Fannydango · 10/09/2018 00:30

Seriously, I know I’m an idiot but am I right thinking this could cost me thousands????

OP posts:
RubiksQueen · 10/09/2018 00:36

It really won't be thousands. I've done it a few times and it's really never been that bad and I've never paid on account ever as I tend to have a good year followed by a bad year and then repeat! This year I'm paying on account for the first time ever! It won't be that bad. Just file your new return asap but if you can't, you can still make an ad hoc payment to your tax account I think.

Doubletrouble99 · 10/09/2018 00:42

Fanny - you can't put in you tax return for 17/18 in Jan 18. it isn't the end of the tax year yet. It's 16/17 that has a deadline for Jan 18.

Original poster
Fannydango · 10/09/2018 00:52

Thank you both Smile

Sorry, Doubletrouble, tying myself in knots - to be clear, when I filed my 16/17 return, I reduced my payments on account for 17/18 (which I paid on the deadlines in Jan and July 2018).

Now that I’ve just sat down to do the return for 17/18, I’ve realised my tax bill will be more than my poa.

So I suppose the “deadline” for paying the underpaid tax was actually 31st July 18? So I’ll be charged 3.25% of £1500 for every day since then??

Rubiks- how do you get away with not poa??

OP posts:
Stupomax · 10/09/2018 00:55

Why do people ask randoms on the internet for technical advice?

Because randoms know the answer.

claireblueskies · 10/09/2018 01:16

You owe about £3.94 in interest, not thousands.

If the £3.94 is stressing you out, make a catchup payment to HMRC now for £1,503.94 with your UTR and a K at the end as the reference, i.e. use the same details as you did last time.

Yours sincerely,
A Random Wink

RubiksQueen · 10/09/2018 01:32

I will do this year.

I've been SE for a few years. A couple of years I didn't earn enough to trigger it. A couple of years I've already known that the next tax year I won't earn nearly as much as the current 'good' year. So the good year I've not POA as I've filed in Jan and know already that I'm way down on the next years one. The year after they don't ask me for POA as the one I've filed is low. Ad infinitum.

But this year I'm paying it because finally I can (I've stopped slacking off and earnt a bit more money)

theycallmebabydriver · 10/09/2018 02:30

So I’ll be charged 3.25% of £1500 for every day since then??

No, see my example above. If it was outstanding for a year you would owe 3.25% of £1,500 (ignoring the change in rate). Each day it is late you incur 1/365th of that.

Self assessed income tax isn't my specialist subject (corporation tax is) but I thought it was the case that if you made payments on account that you paid half in January and half in July, then you made a balancing payment the following January for any underpayment. That being the case I'm not sure at what point it would be regarded as underpaid ie if it's not late until after the balancing payment deadline. If the baby wakes up for another feed later I'll try and find the answer.

gillybean2 · 10/09/2018 03:23

If you have reduced your payments by too much then interest is charged on the underpayment from the date it was due. So from Jan 2018 and July 2018.

When you submit your tax return your payments on account will be recalculated to show the amount you should have paid. Technically this is already due and should be paid asap and interest will be charged daily. The rest of the balancing payment is then due in July 2019.

If you know you have underpaid, even if you are not exactly sure by how much, you can simply make an additional payment on account now which will reduce the interest. It will sit as an overpayment on your account until you file your return.

BarbaraofSevillle · 10/09/2018 05:58

It's 3.25% interest per year, not per day. If that's the only penalty, it won't be much at all. A few quid - maybe £3.94 as suggested above.

Original poster
Fannydango · 10/09/2018 09:37

Ok, thank you oh wise MNers. Am calming down a bit now. So I’m going to owe a few pounds in interest at best.

Presumably as soon as I file my 17/18 return, my underpayment will be due immediately?

OP posts:
silvercuckoo · 10/09/2018 10:40

Are you all sure that undercalculating payment on account actually can be considered underpayment?
It is an advance payment, in respect of yet unearned income. I often overpay, the HMRC has never paid back interest on overpayment to me.

Original poster
Fannydango · 10/09/2018 18:46

Silver - clearly I’m no expert at all here but I’d say the fact that you don’t get interest on refunded overpayments probably isn’t an indication that undercalculating payment is considered underpayment - these things rarely work in the public’s favour when the situation is reversed, iyswim!!

OP posts:
claireblueskies · 11/09/2018 13:51

When you file the return, HMRC will know your actual liability and will be able to calculate the interest and ask you for it.

Interest repayable is due on overpaid payments, however, this is at a much lower rate. And at one point in living memory, the rate of repayment interest was a hefty 0%...

Chipbutty67 · 11/09/2018 13:58

Hey,

I filed self assessment for a couple of years, made a mistake and was given a penalty, it was quite large.

I filled in the appeals form and just honestly wrote how I had come to my number and added all the supporting evidence I had (I.e. What basis did you use to calculate the lower number)

They accepted and rescinded the fine. Just try speaking to someone at the HMRC telephone helpline, they are very helpful.

Original poster
Fannydango · 11/09/2018 16:13

Chipbutty - that's made me panic again now. Because to be honest, um, (and I'm going to sound like such a moron) when I reduced the payments on account, I spoke to someone at HMRC first for advice and she said I could reduce them to whatever I wanted. So I said, oh ok, I'll reduce them to £1000 each. There was no real reasoning behind it.....

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