tax question please help

[girlnextdoor]

I paid my 1st lot of tax as a self-employed person in Jan 08. I have now received a begging letter for another lot- for the year 07/08. I honestly feel as if i am working just to pay the tax man..

my query- if I paid say £4k in January and this latest demand is for say £2K, does that mean in January 09 I will only pay another £2K having paid some now - or does it mean i will be hammered for another £4K as they are always one step ahead of my earnings?

The other point is that I have not earned as much in 07/08 as I did previously, so when will the tax demand take that into account?

I assume you don't have an accountant?

do you fill in your own tax return form? These are normally submitted before September for the previous financial year (i.e. submit in Sept. 08 for year Apr06-Apr07) - then you get the bill which you have to pay by the end of January, I think.

How was this calculated?

Yes in Jan 09 you should pay £2k. The £2k in july 08 is payment on account for what they predict you will earn based on last years profit.

If your recent tax return (07/08) shows you owe less than than, they will adjust your Jan 09 payment accordingly.

Have you completed your tax return for 07/08 yet? If so you may be able to get the reduction in July if you can inform them in time.

speak to your accountant!

as self employed you pay tax 'on account' twice a year. The tax you owed for April 2007 to March 08 was paid in two lumps, one in January 2008 and one in July 2008. So the tax people have asked you to pay them a total of £6k in tax for the tax year that ended at the end of March 2008. BUT this is a GUESS. Have you done your accounts for that tax year yet? When you have done this you will know how much you should have paid, and then they will do two things

1. send you back any overpayment (if you should have paid less than £6k) or demand anything you still owe them
2. re-estimate how much you should pay on account next year. so if you should only have paid £5k tax then they will assume this is going to be roughly the same next year, and ask you for £2.5k on each of the two payment dates.

The quicker you do your tax return for last year the quicker they will get it right.

if you are SURE you are overpaying you can ask for a reduction on the grounds of reduced earnings, BUT if you underpay them they can charge you interest on what you should have paid.

Get an accountant!

I don't have an accountant. I earn so little I do it myself

My last return was in January 08 -I do my own self-assessment and pay online in January each year. This demand is based on my last tax return.

I have not done my accounts for this year yet- I assumed that I would do them by January 2009?

The thing is, an accountant cost £s and it seems ??? simpler to do it myself.

Just to add- in my first year of trading- 05/06, I didn't owe them anything.

Then last year I paid £££ what was due, but this year business has dropped off again slightly, and I don't think I will owe them as much as last year- so I am expecting it to balance out with the january demand. Correct?

I do mine without an accountant - you just need to be a bit organised.

There is a double whammy at one point, because for most people, in your first year you don't owe them anything, then in your second year you pay tax at the end of it, once you've filed your tax return. So your payment in Jan 08 was for the 06-07 tax year, but then, because you're now in the system they will base what they think you owe on last year's earnings and ask you to make 2 payments on account, which they will then adjust when you complete your tax return. You can very easily apply for them to reduce the payments and give them an estimate of what you think you'll be earning - I did this when I was on maternity leave and they accepted it without a quibble.

I'd be quoting £300-£400 per year for accounts preparation/tax return/general advice for a straight-forward-ish business, so we're not necessarily as expensive as you might think. Plus there's usually bits we can find which will save you some money

Thanks all-

Bramshott- that's what I thought- seems unfair that i have paid it ALL for last year in Jan 08 but now I am faced with 50% of next lot due already- but it should be twice year from now on?

Think I'll contact them and say it is an overestimate- my earnings doubled in the 2nd year - but now with everyone having less money, my income has suffered too.

Yes, from now on it should be twice a year in advance - Jan and July.

hiya, as everyone's said, i think, once you owe over £500 in a tax year they ask you to pay on account in Jan & July for the next tax year.

just because the return deadline is 31 Jan you can do it before. I would adivse doing the return by 31 July, then if you haven't earned as much the July payment can be adj. It'll also mean you can plan for the tax bill.

FYI, if you save 20% of your earning that will roughly cover the tax unless you are a 40% payer.

oh and i wouldn't contact them until you know the exact figures. they can adj the payment down, but if they do that too much then you will pay interest on the difference.

Really, i would just do the return now. it'll save hassel, you'll know the exact amounts you have to pay in July 08, Jan 09 and July 09 then. Much more helpful IMO.

I have an accountant who just works out my tax bill & does a basic P&L .... and she charges £70. That is mates rates, but totally worth it, imho.

Am I the only self employed person not to pay on account? I pay mine once a year - could they change that at any time?

Sympathies girlnextdoor, my DH had this but they did reduce it without a quibble when he explained that his earning would be less.

twofalls, the basic rule is once the tax is over £500 you pay on account, but it does depend on what the liability is. I won't complicate things by explaining more

Tax rules are ridiculously overcomplicated IMO

my finances are rather complicated, and I pay £750 p/a, but my accountant has saved me thousands over the years. I'd guess you would easily get the outlay back over a few years.

DH pays just under 300 a year for his accountant. It's worth it for the peace of mind and lack of hassle.

LOL eddas complicated tax rules are what keeps DH in a job (and me in wine ). We heart complicated tax here .

tehy keep me in my job too but i don't heart them Some of them are just stupid though. You read them and think

Get your accounts done asap.
Don't leave it till later thinking "oh I don't need to do it till Jan".
If your accounts are very simple, any book keeper could and do do accounts and a tax return for as little as £200. My best friend does.

Oh I love a good complicated personal tax return.
Even better a really complicated corp tax. Something i can really get my teeth into.
Oblomov = sad bint. Yes, 'fraid so

Thanks Eddas, I do pay more than that so its strange they don't want me to. I called them about it too, but I am not complaining!

twofalls, do you pay alot of tax at source plus the bill to HMRC? If your overall tax is 80% paid at source they don't ask for payments on account.

They(HMRC) are going to increase the £500 limit in the future. Can't remember how much too though

another thought, is some of the tax capital gains tax each year? that doesn't count for the payments on account rule.

No, neither of those things apply. Ah, thinking about it, my tax bill last year was less than £500 because I only had a few months of trading. Forgot about that . In my defence, I have just done this year's return so I was basing it on that. I suppose it is likely that I will be asked to pay on account next year then?

yes you will be asked to pay on account in Jan and July 09. So in Jan you will owe the bill plus half the bill again on account.