AIBU to find HMRC really confusing?

[Hmrcmakesnosense]

To preface - I know I am very fortunate to be in the position where I have enough money to owe tax and I absolutely do not mind paying it

BUT - I am completely baffled by HMRC, tax codes, untaxed interest and tax returns.

Two and a half years ago we sold our house and have been renting in the catchment for the school we want DC to go to. Eldest is there, hopefully youngest will get in next year. The plan is then to buy and not have to worry about catchment.

As a result, I have had quite a large sum sitting in cash in my account - I have been using NSandI 1 year bonds and the interest paid so far has been in tax year 24/25 and the current tax year. DH pays 40% tax and I pay 20% so we decided this was the best way.

I contacted HMRC via their webchat as I wasn't sure how to declare the interest and was told that, although they are given interest data from banks, as I have received over £10,000 interest I still have to do a tax return.

I owe just under £2,500.

I duly set up my account. Started the return and all seemed ok. First mistake - DH told me not to submit it until January otherwise we would have to pay the tax immediately and it would be better to have it in our account longer... (I just wanted it sorted!).

Then in early December I get a notice for a tax code change - my payroll department called to query it as it takes me into a negative personal allowance. I did not understand the figure they have quoted for unpaid tax, it bears no relation to what I actually received. I tried to call HMRC (couldn't get through), used the web chat but got nowhere - was told I still needed to do a tax return and that "it would all sort itself out in the end".

I panicked, updated my tax return with the new tax code, ticked the box to pay now and it spat out a number I needed to pay (£970) - I paid it.

Got my payslip today and I have been deducted additional £600 tax. Which is more than I thought it would be based on the HMRC figures on my coding notice (but makes sense in terms of the real figure that I owe as there is only 4 paydays left for the tax year). I had anticipated £250 additional being deducted and planned on that basis.

So now DH is annoyed at me saying I shouldn't have done the return at all, HMRC clearly have it all in hand and now I have paid almost £1k for no reason.

TBH I prefer paying a bit more now as it should hopefully mean less going out next year when we will (hopefully!) be in the process of moving. I think I have paid on account for next year - it really isn't clear. However, it now leaves us short from what we budgeted for as my pay will be down £600 a month until the end of April.

BUT - the process has been so difficult! I have no idea what figures HMRC are working from, the coding notice makes no sense (my payroll also said the figures I gave them do not match) and it is impossible to contact them.

I am relatively intelligent (honestly!)and tech savvy - how would an elderly person (and probably more likely to have this level of savings) cope?

Aargh - surely there must be an easier way? HMRC could share on your tax account what reports of untaxed interest they have received and you can confirm/ amend them?

Right now, I hate them. Trying to sort the tax due on my mother’s estate. Just grim.

HMRC will let you know if you need to do a Self Assessment tax return

Do your hours change each month?

HMRC systems really don't cope well with varying income month by month. It will all come right in the end (probably), but I agree it is unsettling.

@Hmrcmakesnosense I have submitted a SA tax return every year for decades (I have rental income) and I also find HMRC systems and communications pretty incomprehensible!

PPs have given good advice (especially about understanding which tax year payments relate to) and I don't have much to add, except to say I think you would benefit from having a financial advisor. And to ask if you are making full use of your ISA allowances to avoid at least some of the tax bill.

They really don't... I have heard nothing. It was only that I checked that I knew to do it and it took me a few weeks to set up a self assessment account.

I got a new tax code today... 🤦🏻‍♀️

Yes they do anything from 125 to 137

Honestly I just wouldn’t even attempt to do my own tax return. I’m an intelligent person (3 degrees including a PhD) but the whole system is baffling, even if you don’t have an unusual tax situation. Pay a professional to complete and submit your return - they can also speak to HMRC on your behalf. It’s usually about £3-400 and well worth it imo

It’s actually the other way round; individuals are supposed to let HMRC know that they need to fill in a self-assessment tax return.

If HMRC are approaching you about tax, it’s usually because they’ve had some sort of tip off! (Bank interest, notification of new income etc)

When my dad died and I was working out the IHT, I spoke to three different people at HMRC and got three different answers.

So confused I hired a specialist accountant to help, I didn't feel even he was 100% sure!

Not once you are in the system, those of us who do SA get reminders through the post and by email.

Agreed, I’ve been in the system for years myself.

I was responding previously to a poster who mentioned they’d never filled a tax return in, and wasn’t sure if they had to do one.

For the first time, an individual needs to get themselves into the system, by notifying HMRC initially.

I've said to DH a number of times that I don't understand how 'the average man on the street' is supposed to deal with HMRC and the tax system.

DH has always been on PAYE and quite honestly we're sick to death of HMRC changing his tax code one month and changing it again the next. They paid him a refund one month and a couple of months later sent a notice to say he'd underpaid tax and owed roughly double the refund they'd recently paid him. A bit of me dies inside every time an HMRC letter lands on the doormat.
All pay (and now pensions) have always been taxed at source. We don't own rental property. We have some savings which DH had to pay extra tax on before he retired. In the great scheme of things our tax affairs are simple and yet HMRC seem to have overcomplicated it to a point we're finding it hard to tell if what they're doing is correct.

A wise boss I once had in my early working life told me that HMRC work on a system called 'guesstimation' and to check everything that they do. He wasn't wrong!

I'm dreading DH reaching State Pension age as that'll be another thing for them to mess his tax code around for.

Yes, that's what fooled me - I get multiple reminders to complete a tax return every year. But other PPs are right, if you've never done a tax return then HMRC wouldn't necessarily know that you need to do one, so it's up to the individual.

I had to get advice filling in my form this year, and the form info/ chat bots didn't cover what I needed. I finally got through to a human on the phone, but it was someone in the general call desk. They advised me to go back through the phoning and "press for" process and just keep saying " I want to speak to a tax adviser" and not press any selections and I finally got through to one. The advisor wasn't sure what I should do with my problem with the form either but agreed that my suggested course of action was a good idea, and to write in the comment box what I had done and that they too were unsure what to advise other than that. These comments in the box do get checked by a human apparently.

@Starseeking You are also supposed to submit a self-assessment tax return to HMRC if you earn over £100k via PAYE.

This isn't the case any more. They raised it to £150k for 2023/24 and then abolished the limit altogether for 2024/25 if your income is through PAYE and you don't trigger a need for self assessment through other means.

i too am a competent (retired) professional - and I used to have a rental property. I’ve always used an accountant for peace of mind - and carried on doing that this year after selling the rental - mainly after watching an old friend get into a terrible muddle and paying too much tax by misunderstanding that the term “income” didn’t include the repayment to him of a loan he’d made to someone else…. It was a nightmare to sort out.

This year even the assistant doing the return (mine is now not complicated) got confused over the NS&I bonds - like you I’d put the proceeds of the house sale into them. They send me a copy of the form they have filled in on my behalf - so in future years, if nothing else changes, I will simply use that as a template of where to put the various bits of information.

I had to complete my tax return for the first time this year as I went self employed part way through the year. Bloody nightmare.

I had to fill in details of my employment, including details of the company who employed me. I had to say whether they were a close company (which means they have 5 or fewer directors). Does anyone know why this is in any way relevant to how much tax I need to pay?!? What a waste of my life googling what it meant, googling how to find out, going on companies house and counting the directors…it’d be great if the questions they asked actually related to my tax affairs rather than other random information.

Just to make it even more complicated, if the money in that account belongs to both of you then I'm not sure just putting the whole interest on your tax return is legal. It would really need to be split no matter whose account it is in.

It’s all very well them telling us to check but we have no idea if the code is right. I do check the information but as you say, it keeps changing. I’m on PAYE and I’ve been told that I’ve underpaid tax and that they’re going to claw it back over the next year but, as you say, last month I got a notice with a different code and everything seemed fine. I have no idea why they’ve changed it. It’s a mystery

Thanks for this, I’ve been in the system so many years now I didn’t realise they’d done away with the income stipulation.

Unfortunately for me I am still required to be part of this system, so I’m about to start downloading my bank account transactions for 2024/25, so I can send them on to my accountant to complete my SA before the 31 January deadline!

My tax exams were far too long ago to give you the precise details, so hopefully someone else can, however it’s not a random question.

The UK tax rules say something like if you are a close company and make a loan to yourself, there may be a further tax charge, and they will also look at the level of interest being charged and deducted for tax purposes.

The question is asked so that HMRC can look out for whether someone is trying to evade tax, as accounting profit and tax profit are two completely different things.

It is definitely not you OP.

I think when you owe less than £3,000, there are two options if you submit before end of December - one, get them to recover the payment immediately during the remainder of thr current tax year, via your PAYE tax coding; or bump the repayment into the forthcoming tax year and collect it then via your PAYE tax coding. I suspect you’ve ticked a box somewhere for the first of these options.

So, for example, I have been “overpaid” Child Benefit during the 224/25 tax year. I need to to pay back around £500. I could tick a box saying, please collect this immediately through an adjustment to my tax code, over the remaining months of the 2025/26 tax year. Or I could check another box saying, dont do that but adjust my 2026/27 tax code instead.

Over my years doing tax returns I’ve experienced the old HMRC adviser wheel of fortune (spin it and get a different answer every time! - all three incorrect as it turned out), I’ve sent recorded post letters that are never responded to, been sent notification I’ve made errors but then heard nothing further, spent hours and hours on hold, etc.

My tax affairs are incredibly simple. I do not know how they can make it so complicated.

Classic New Year's Day task!

in 2022 I had 3 letters from them saying I had been underpaying tax (on paye) since 2019 and I owed them just under £10k! Due to my council job not applying the correct tax code

The man from HMRC could only suggest I clear it in 12 months (so £900 ish a month extra in tax) - i ended up leaving it until the debt collectors got involved so I could set up a 3 year payment plan instead.

Indians Jones couldn't navigate HMRC with a compass. It's a plate of spaghetti in departmental form.