Councils using ‘Intelligence’ to track down low EPC properties and fine £5,00015:08 PM, 29th March 2021
About 2 weeks ago 36
Taxpayers often ask why they have to pay more income tax than the amount they owe for the year when filing their self assessment returns.
The answer comes down to many taxpayers failing to realise what you owe is strangely not what you pay.
Your tax return calculation will show two figures – the tax you owe for the year and the amount you should pay HM Revenue and Customs on January 31 and July 31.
The first tots up all the income from various sources, like salary or self-employed earnings, interest on savings, dividends and rent from letting property.
Next, the total tax due on that total – called the STI or statutory taxable income – is worked according to the bands of lower rate and higher rate income at 20% and 40% rates.
Then, any tax paid during the year, like income tax deducted through a PAYE scheme, is taken off to leave the final tax bill.
Tax trap for landlords and the self-employed
Many taxpayers do not look beyond this figure, but most tax calculations involve a further step – subtracting any payments on account.
If the figure is a plus figure, then a balancing payment is due to HMRC and if the figure is negative, a refund is due to the taxpayer.
For example, a taxpayer has a tax bill of £20,000 for 2009-2010 but made two payments on account of £7,500 on January 31, 2010 and July 31, 2010, the actual amount of tax due is £20,000 – (£7,500 + £7,500) = £5,000.
But the payment due is £5,000 plus 50% again = £7,500. That £2,500 is an advance payment on next year’s tax bill and is carried forward to the self-assessment calculation for 2010 -2011 along with the £2,500 advance payment due on July 31, 2010.
If you think your payments on account are too high – maybe you will earn less money or have sold rental property that reduces your income – then you can opt to make a lower payment on account.
Setting the figure too low in a bid to keep the cash in your bank instead of handing it over to HMRC will trigger a tax penalty from HMRC.
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