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Where Taxpayers and Advisers Meet

Taxman and an OAP

redser
Posts: 8
Joined: Wed Dec 17, 2008 5:12 pm

Taxman and an OAP

Postby redser » Tue Feb 24, 2015 10:59 am

I'm writing this on behalf of the person subjected to the following.
1. Background: Female, 73 yo OAP, receives both an Irish and British pension. No other income. (Figures below are rounded but similar in value to real.)
2. Completed 2013/14 Tax return on-line early Jan 2015.
3. Submitted (on time) and calculation showed Tax owed £1000.
4. Chose to pay in 2 instalments, so paid (by DD) £500 early Jan 2014. Bank account shows HMRC took the money. (I have from my bank account a "HMRC-NDDS-xxxxnumbersxxxx reference)
5. When I went on-line to "View your calculation" the bottom section, title "Estimated ...due by 31st Jan" showed Total due was £1500. (i.e. the original £1000 added to 1st payment of £500.)
6. Mid Feb received letter from "Debt management" saying "please pay £1000 now". It also said "we will charge interest" and " we will check your account for payment". No reference to the instalment already cashed by HMRC.
7. Subsequently got tax code for 2015/16 and a page titled "Current Position". This showed "GBP2000 will shortly become due for payment" with a breakdown as follows:
"Tax year ending 05 April 2015 - First payment - Due 31st Jan 2015 - £500"
"Tax year ending 05 April 2015 - Second payment - Due 31st Jul 2015 - £500"
"Tax year ending 05 April 2014 - Balancing payment - Due 31st Jan 2015 - £1000"
Total - £2000
Sent a letter asking for clarification, (no response so far), phoned and was told tax person could not explain. Have now borrowed the second instalment of £500 and paid it. Bank yet to show if HMRC has cashed 2nd instalment. In the meantime getting worried and anxious about the demand to pay £2000 for last year and this year and the application of interest payments. What can I do next? Help!

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Re: Taxman and an OAP

Postby jpcentral » Tue Feb 24, 2015 1:47 pm

Sounds as if it might be "Payments on Account". From Gov.uk website:

2. Payments on account
‘Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).

You have to make 2 payments on account every year unless:

your last Self Assessment tax bill was less than £1,000
you’ve already paid more than 80% of all the tax you owe, eg through your tax code or because your bank has already deducted interest on your savings
Each payment is half your previous year’s tax bill. Payments are due by midnight on 31 January and 31 July.

If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by midnight on 31 January next year.

Example

Your bill for the 2013 to 2014 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2015 is £2,700. This includes:

your ‘balancing payment’ of £1,200 for the 2013 to 2014 tax year (£3,000 minus £1,800)
the first payment on account of £1,500 (half your 2013 to 2014 tax bill) towards your 2014 to 2015 tax bill
You have to pay your second payment on account of £1,500 by midnight on 31 July 2015.

If your tax bill for 2014 to 2015 is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2016.



If the tax due for 2013/14 was £1,000 there will be a £500 payment on account due in addition to the £1,000. If the tax due was only £999, there will be no payment on account due.

Can't be certain without seeing the actual information and return, but this sounds a likely explanation - but obviously not a solution.

I don't know if you have taken advantage of the 10% income deduction for foreign pensions:


Pensions

You have to pay tax on pensions if you’re resident, or were resident in any of the 5 previous tax years.

You’ll usually only pay tax on 90% of your foreign pension payments (10% is exempt from tax). Check with your pension provider to find out how you’ll be taxed.




This might make the difference.
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

Ian McTernan CTA
Posts: 1232
Joined: Wed Aug 06, 2008 3:02 pm
Location: Bedford
Contact:

Re: Taxman and an OAP

Postby Ian McTernan CTA » Tue Feb 24, 2015 2:04 pm

I'm just surprised that this is the first year in which such payments have arisen, given the person's age is 73, and presumably has been receiving the pension since retirement age.

Payments on account can be very confusing, but are best summarised as follows:

If the tax owed for the previous tax year is over £1,000, you have to make payments on account (there are exceptions, let's ignore them). These are commonly known as POAs.
The payments on account are based on the previous tax year's tax due. Half the total is due for each payment.
The payments are due 10 months in to the tax year and 4 months after the end of it (January and July to the rest of us mortals).
The payments are taken in to account when arriving at any balance to pay for that tax year when the final reckoning is done at the end of January. The next year's payments on account are then calculated using the total tax due figure (ignoring any payments on account made).
This leads to the first January after the end of the first tax year in which tax is due being a bit of a double whammy, as you have to pay all the previous year's tax and half again.

Putting this in to the current situation, you pay £1,000 for 2013/14 on 31 January 2015.
You then are due to pay £500 as a payment on account, also due 31 January 2015.
You are due to pay the second payment on account 31 July 2015, also £500.
When we get around to 31 January 2016, assuming the tax bill works out at £1,000 for 2014/15, the only tax due then will be £500 on 31 January 2016 and £500 on 31 July 2016 as the £1,000 POAs cover the £1,000 liability for 2014/15.

HMRC issue a bill for tax 'due or becoming due' of £2,000 in the hope you pay early.

In order for you to deal with HMRC on their behalf, I'd suggest you get an authority to act as her agent signed and sent in to HMRC then you can check online whether payments have been credited against her account.
McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com

redser
Posts: 8
Joined: Wed Dec 17, 2008 5:12 pm

Re: Taxman and an OAP

Postby redser » Tue Feb 24, 2015 3:55 pm

Thanks for the comments. Had a (quick) look at "Payments on Account" and cannot see any reason or logic for it except when tax owed exceeds £1000. Do you think the tax man might appreciate that this OAP had to save the necessary cash to pay 1st instalment for 2013/14, then under duress, borrowed the 2nd instalment, paid it and now has no more money to satisfy an immediate payment on demand for next year? Can this be the actual requirements of HMRC? R

redser
Posts: 8
Joined: Wed Dec 17, 2008 5:12 pm

Re: Taxman and an OAP

Postby redser » Tue Feb 24, 2015 4:32 pm

It occurs to me that the logic behind "Payment on Account" is questionable. The reason a tax payer (might) choose to make tax payments in 2 instalments is due to a shortage of funds. BUT.....in so doing, it triggers the "Payment on Account" rule which now demands an additional sum that is half of this years tax "on Account" at the same time. If the tax payer had enough funds to satisfy this "Payment on Account" rule they would paid it all in the first place so negating the need for a "Payment on Account". Is there any appeal mechanism available? R

robbob
Posts: 2836
Joined: Wed Aug 06, 2008 4:01 pm

Re: Taxman and an OAP

Postby robbob » Tue Feb 24, 2015 5:01 pm

Thanks for the comments. Had a (quick) look at "Payments on Account" and cannot see any reason or logic for it except when tax owed exceeds £1000. Do you think the tax man might appreciate that this OAP had to save the necessary cash to pay 1st instalment for 2013/14, then under duress, borrowed the 2nd instalment, paid it and now has no more money to satisfy an immediate payment on demand for next year? Can this be the actual requirements of HMRC? R
The main logic behind the payment on account system (presuming a payment is needed) is sound in that no payment is needed until month 10 of the tax year and the second payment on account is not till after the tax years ends, compared to paye or subcontractors who have tax force-ably parted at source seems like a fair system if you ignore the complexities of trying to factor things through during the tax year. Presumably you are aware payments can be reduced down to nil or amount due if tax for that year is nil or lower than the previous year.

2. Completed 2013/14 Tax return on-line early Jan 2015.
By completing the return in January you have missed the deadline whereby amounts due could possibly be coded out and also payments on account avoided, if you don't like the payment on account system try to complete the return before the end of December if there is sufficient tax deducted at source from a pension so that coding would be possible.

One other thing - is the Op aware of the reason why the liability exists, if it is not known why there is a liability to me there is always a small chance the calculated figures may be amiss, if the reason is known as to why the liability exists then presumably that will aid the process with regard to planning for future bills (I.e. try to put aside at the time money as appropriate from any income not taxed at source so that there is always enough to cover the bills)

redser
Posts: 8
Joined: Wed Dec 17, 2008 5:12 pm

Re: Taxman and an OAP

Postby redser » Fri Feb 27, 2015 9:57 am

Tried to get this onto the forum but access to "reply" was down. Any, its the last needed communication and a thank you to all that helped.

Many thanks everyone. I think I’ve now understood what’s happened. It is the presence of “Payment on Account” (PoA) that we failed to understand and reading the HMRC communications again, it’s now obvious that PoA is the reason. We had better get on with “paying the man”.
I would be interested in a reaction to my conclusion: From the comments made I conclude that if you don’t complete your Tax Return before Dec (i.e. not Jan) and you owe more than £1000, then you are penalised by the imposition of PoA. I’ve always had it given that if you do your returns on-line you have ‘till end of Jan to meet the deadline. We live and learn.
Other points raised are noted, much appreciated and will be subsumed into our knowledge base for future use. Thanks again.

redser
Posts: 8
Joined: Wed Dec 17, 2008 5:12 pm

Re: Taxman and an OAP

Postby redser » Wed Mar 04, 2015 1:44 pm

I forgot to ask. "jpcentral" mentioned 10% tax free on foreign pensions. I checked and found it was not claimed. How far back can a claim be made? Thanks. \r


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