Contractor Tax Question

[mamaslave18]

DH contracted for a few months at the start of this year using an umbrella company to get paid. It took ages for them to get setup and each time he sent them an invoice they took an age to pay it. Consequently money that was earned in the last tax year did not get paid until the new tax year began.
This has skewed DH’s tax code and now that he has a permanent job he is being taxed a lot because of this late payment ( I think it was two months wages paid after April that was earned before).

Is there anything we can do about this or does he just have to suck it up and pay the tax? It’s made more painful because it’s taken his estimated earnings to just over 100k and so he is being taxed hugely.

He has to suck it up
especially on that sort of pay rate

I think if he filled out a self assessment it would right itself if anything is due back.

Because the umbrella company put the payments through after the year end, they will stay in the year paid

If he's just tipped over, could he make extra pension contributions to get back below the 100k threshold?

That was what I suspected but hoped there might be something he could do. It pushes him onto an effective 60% tax rate.

He wouldn’t earn anywhere near 100k on a usual year.

I’m not sure how pension contributions work in this respect. He’s on PAYE.

Pensions contributions to his SIPP will go off his incremental rate through his SA return

what does his accountant say?

He doesn’t have an accountant. He has always been permanently employed but lost his job in 2017. He managed to find contracting work for a few months and used an umbrella company so he was still PAYE effectively. Because of the time without employment and the late payments all the money he earned contracting was swallowed into a black hole of debt.
He was fortunate enough to find another full time role this summer. He isn’t earning even close to 100k but because the contracting paid well and because money owed from early 2018 was paid after April HMRC are taxing him as a mega high earner.

get the return filed, make sure that payments on account are adjusted

an accountant would save you money

The tax return he is due to file won’t account for money paid after April ‘18 though?

Totally out of my depth here and panicking a bit as I’ve been claiming 30 free hours childcare not realising all of this. I’m worried I’m going to get slapped with a big bill to pay it all back.

I think it's worth getting some proper advice from an accountant here before submitting a return, or he might miss the chance to minimize his tax bill (and keep the 30 free hours!).

The pension contributions should be straightforward for a professional to help you with.

On another tack, if he was actually on PAYE with the umbrella company then I don't think his employer should have been able to delay payments in this way without a penalty. But again, you need somebody who really knows their stuff to review everything.

Yes I do think we need a professional as it doesn’t make much sense to me.

When contracting he would have to get his time sheet signed off which could take a week or two to be done and sent to the umbrella company. Then they’d fuck about before paying it. I don’t know what they had to do their end but it was never smooth.
The stress of never knowing if or when DH would be paid is why I am so glad he no longer contracts.

Did he complete a tax return?

He will also need to complete one for this year if he was paid after April.

Do youbalso claim child Benefit? The £20 pw? Im guessing not if he earns over 50k. As if you are you will need to paybsome of that back too.

So it depends on when the Umbrella company reported to HMRC that they paid your DH. If they ran their payroll on time but were late making the cash transfer then you may be in luck. However if their tardiness was in running the payroll then tough. Your DH's P60 from last year and P45 from when he left will tell you the answer. If it was a case of payments coming this year then there is nothing you can do - except as poster above have said by making a lump sum contribution to his pension

No I don’t claim anything except for the 30 free hours and tax free childcare.
I will need to ask him about a tax return. He hasn’t filed anything yet. Everything that he has earned has already been taxed before it reaches his account. So he doesn’t have to do a tax return usually but I think now he is down as earning over 100k he is supposed to. But that’s for the 2018-19 tax year.

It all depends if they deducted the tax by treating him as and employee or as a subcontractor. If you have his P45 from the umbrella company then it was as an employee

He could have been deducted tax under the CIS scheme if he was a sub contractor. Then he would need to file his self assessment and he may get some tax back because he could claim his exoenses for woeking for them. I. E travel etc

@NewPinkSocks that's only if DH works in construction - OP doesn't say. Otherwise as he worked through an umbrella then he would have been an employee and hence taxed as PAYE

No DH isn’t in construction. He was taxed like an employee.

@mamaslave18 in that case his P60 & P45 will tell you the answer

No help to the OP, but this is one of the pitfalls of using an umbrella. If the OP's partner had set up his own limited company instead (a contractor accountant costs are similar cost to umbrella fees), he'd have been able to "pay" himself more flexibly/optimally and have avoided this problem which is quite common.

I had a similar problem with an umbrella company and national insurance (not nearly so much money but still left me a couple of hundred out of pocket) and they were so unhelpful. No advice just sympathy - I also was not used to working in this way and found it very difficult to manage.