FAQ
- Deadline for filling tax return
- Deadline for informing HMRC that a tax return is required
- Tax on Dividends
- Why do I have to pay extra tax?
- What is a Payment on Account?
- When is a Payment on Account paid
- Payment on Account for capital gains tax or student loan
- What can we do to reduce your payment on account?
- When is a POA not required
- I didn’t pay a POA last year so why do I have to pay now?
- Payment of tax through tax code
- Keeping records
- Time limit for record keeping
- Penalty for poor record keeping
- Incorrect Returns
- Interest
- Penalty for late payment of tax
Deadline for filling tax return
The paper return is to be submitted to HMRC by 31st October and the online return by 31st January. The tax year dates to which the self assessment return relates to runs from 6th April to 5th April of the following year.
Rodliffe submits all self assessments on line wherever possible
Deadline for informing HMRC that a tax return is required
An individual has to notify HMRC of their changeability to tax by 5th October.
If the notice to file a tax return is not issued by HMRC before 31st October, then the due date for the balancing payment is three months after the issue date
Dividend income falling within the basic rate band limit (£43,875) is tax free. Dividend income received is treated as net of 10% tax and needs to be grossed up for tax purposes. For example, a £900 net dividend = £1,000 gross dividend which is made up of £900 net dividend and £100 tax (10% X £1,000).
Tax on dividends above the basic rate tax band is at 25% on net dividend ( which equates to 22.5 % on gross dividend).
Why do I have to pay extra tax?
You have to pay additional tax because not all tax is deducted at source. This could be due to one of the following, (the list below are some of the examples and not a complete list)
- You are receiving a benefit in kind and tax on these benefits wasn’t deducted from your salary
- You have rental property income which is received gross and you have to pay tax on it through your self assessment
- You sold an asset and made a capital gain on the sale. Tax on capital gains is due through your self assessment
- You have received a dividend/bank interest and you are a higher rate tax payer so you have to pay additional tax on income falling above the basic rate band.
A payment on account (POA) is payment of tax for the current tax year based on income of last tax year.
POA is required for self assessment individuals. Other individuals who have income above the annual personal allowance, but pay tax throughout the year, eg through monthly pay as part of the pay as you earn scheme will not therefore be required to make a POA.
When is a Payment on Account paid
When the tax return is submitted, an individual is actually paying last year’s tax liability 9 months after the tax year ended. Therefore, HMRC like to get an estimated amount of tax from self employed individuals during the year in two instalments. The first one is due on 31 January which is 10 months after the tax year start date and the other one is in July which is four months after the relevant tax year end.
As this is a projected figure HMRC are assuming that you will earn the same amount as last year and you will have the same liability every year. Therefore, this is just an estimate.
Please note, we can quite often calculate a better estimate than HMRC which may well reduce the POA based the current year income being less than the preceding year. However, if the reduced POA is less than the actual tax liability at the year end, then the individual will incur interest charge or even a penalty.
No taxpayer is required to pay in either January or July more than 50% of the relevant amount for the preceding year, even though it may already be clear, at the time the payments are made, that the actual liability for the year will exceed that for the preceding year.
Payment on Account for capital gains tax or student loan
Capital gains tax and student loan repayments are excluded from the computation of POAs. So any capital gains tax or Student Loan repayment is simply payable as part of the balancing payment on 31st January following the tax year.
What can we do to reduce your payment on account?
We can plan your dividends for this tax year. This depends on your spending requirements and money you need on a regular basis. As part of our self assessment procedure we offer our clients an assessment of future tax liability based on our own estimates. We can than calculate how much tax you are likely to pay and the POA based on this figure.
If you have a limited company then the tax department at Rodliffe will liase with your account manager to calculate the amount you can take which will help you to defer the extra payment of tax. We can reduce this to any amount depending on your cash flow circumstances. Please note that if later you decide to take more dividends than suggested, this will attract more tax.
If you are not one of our limited company clients or don’t have a limited company yet, we can still do an estimated calculation for you. A claim can be made to reduce the tax to:-
- Nil, or
- To a fixed amount
- Any such claim must state the taxpayer's `belief that
- there will be no income tax liability for the current tax year or that any such liability will be covered by income tax deducted at source, or
- the amount due for the current year, after taking into account tax deducted at source, will be a certain amount which is less than the amount of payments on account based on the preceding year, or
- The claim must include the grounds for that belief. If the claim does not give these details it has not been properly made and HMRC could challenge that the claim was fraudulent
No POA is required if the tax due on self assessment is below £1,000, or, more than 80% of total tax due was deducted at source, or your extra tax is less than 20% of the total tax
I didn’t pay a POA last year so why do I have to pay now?
No POA is required if the tax due on self assessment is below £1,000, or, more than 80% of total tax due was deducted at source, or your extra tax is less than 20% of the total tax
Payment of tax through tax code
We can defer your initial payment of tax and instead of paying cash by 31st January this will instead be collected through your tax code during the next tax year. Therefore, effectively delaying the payment of tax for more than a year. To qualify your total tax should be less than £2,000 and you must have a salary income where this tax could be collected from.
HMRC have become stricter and expect that you keep appropriate records to support your tax return, more specifically:-
- The tax payer must keep all the records used in making and delivering a correct tax return.
- The tax payer must keep information that shows that they have prepared a complete and correct tax return.
Records must be retained until later of:-
- 5 years from 31st January following the tax year where the tax payer is in business (as a sole trader or in a property business), or
- 1 year after 31st January following the tax year.
Penalty for poor record keeping
The penalty of failing to keep adequate records is £3,000 per tax year or accounts.
One penalty regime applies to all incorrect income tax, capital gains tax, corporation tax, PAYE, NIC and VAT returns.
The rules apply to return periods starting after 31 March 2008 where the return is filed after 31 March 2009, ie from the 2008/09 Tax Return onward. The rules also apply to claims, accounts and any other documents provided by HMRC. The amount of the penalty is based on lost revenue and depends on why the return is incorrect. If the inaccuracy or under-assessment is :
- A mistake, then no penalty
- Failure to take reasonable care ( ie the taxpayer did not take reasonable care in completing the return) the penalty is 30% x the tax underpaid ( £300 PAYE)
- ‘Deliberate understatement but not concealed’, the penalty is 70% of the tax underpaid
- ‘Deliberate and concealed’ (eg by providing false supporting evidence for an incorrect figure) the penalty is 100% of the tax underpaid
The maximum reductions are as follows: are the penalties reduced based on the disclosures below?
Failure to take reasonable care 30% 15% Nil
Deliberate understatement but not concealed’
70% 35% 20%
Deliberate and concealed’
100% 50% 30%
Late payment of tax will be charged interest from the due date. On underpaid tax the rate is +2.5% above base rates
- On over paid tax the rate is -1% below base rates
Penalty for late payment of tax
- 5% of unpaid tax at penalty date which is 30 days after the tax due date
- Further 5% penalty where tax is unpaid five months after above penalty, and another 5% after further five months
Late payment penalties can be surrendered where the tax payer agrees a time to pay by making an arrangement with HMRC. This is a service provide by HMRC to agree payment of tax in instalments.
We are so confident we can make tax savings for you and your business, we are pleased to offer a 'no strings' review of your current arrangements without charge 
