Potts & Co - Accountancy & Business Advice

Earlier Year Underpayments

By | HMRC, PAYE, Potts & Co Accountancy & Business Advice News

Tax calculations are now largely automated. When your tax return is submitted the HMRC computer calculates how much tax you owe, or whether a tax repayment is due, and issues a tax statement. If HMRC’s result agrees with the tax figure the software came to, everyone is happy and your tax file can be closed for another year.

However, sometimes the HMRC computer tries to be too clever for its own good. It compares your self assessment tax return to data it has collected from other sources such as interest reported by banks. Sometimes this third-party data may not be accurate, nor even relate to your own tax affairs. Once the computer has made a connection it raises a flag to indicate that the tax payable for the current year is too low, or the tax repayment too high. It will add in an ‘earlier year underpayment’ to your tax statement or PAYE code.

If this happens to you we need to get your tax statement or tax code amended. This can be done through your personal tax account or by ringing HMRC. Please let us know if any strange adjustments appear in your PAYE code.

Tax Cuts & Cliff Edges

By | Budget Update, PAYE, Personal Tax, Potts & Co Accountancy & Business Advice News

There was good news for individual taxpayers in the Budget; the personal allowance will rise from £11,850 to £12,500 on 6 April 2019. This will provide taxpayers on the basic rate (20%) with an income tax saving of £130 per year.

Those who pay tax at higher rates will also rejoice that the 40% band will effectively start at income over £50,000 for 2019-20.

This will not apply to taxpayers in Scotland as they pay tax on earnings and profits at different rates and bands than apply in the rest of the UK. The Scottish tax rates for 2019-20 are due to be announced on 12 December 2018.

Welsh taxpayers will pay Welsh income tax from 6 April 2019, but the Welsh tax rates and bands have initially been set to align with those in England and Northern Ireland. Welsh taxpayers should soon receive PAYE codes with a prefix “C” (Cymru).

If your total income is £50,000 or more and your family receives child benefit, you should inform HMRC that you need to pay the high-income child benefit charge (HICBC) to repay some or all of that benefit. All the child benefit is clawed-back for income levels over £60,000. The HICBC is collected through the tax return of the highest earner in the family, or through their PAYE code, irrespective of who actually receives the child benefit.

This charge could make your marginal tax rate including national insurance, jump from 32% to 62% at £50,000 from 6 April 2019.

Potts & Co - Accountancy & Business Advice

Penalties For Late PAYE

By | HMRC, PAYE, Potts & Co Accountancy & Business Advice News

All payroll payments and deductions must be reported to HMRC under real time information (RTI).

The main RTI report is the full payment submission (FPS), which should be sent on or before the day the payment is made to the employee. If no payments are made for the pay period, you need to submit an employer payment summary (EPS) to HMRC.

To ensure HMRC receives the RTI submissions at the right time, it is good practice to do things in this order:

1) run the payroll;
2) make the RTI submissions;
3) pay the employees.

If the HMRC computer does not log that an FPS or EPS was received when expected, it can be programmed to issue an automatic penalty. However, HMRC has built in a three-day grace period so the computer will not issue a penalty if the RTI submissions are made within three days of the employees’ payday.

This grace period is not an extension to the deadline; if you consistently file within this three-day window you may be contacted by HMRC and considered for a penalty. You are permitted one late RTI filing in the year before a penalty is issued.

If you need to file an FPS late, get your excuse in early by including the code letter in the late reporting field in the submission. The code for having a reasonable excuse is “G”.
If HMRC has sent you a penalty notice that you do not agree with, you have 30 days to appeal, which can be done by letter or online. We can help you with that.

Potts & Co - Accountancy & Business Advice

Income Tax Calculations

By | HMRC, iNCOME tAX, PAYE, Personal Tax, Potts & Co Accountancy & Business Advice News

Every year HMRC reconciles taxpayers’ tax liabilities to the tax reported as paid for the individual via PAYE. This is happening now for the 2017-18 tax year.

If the calculation for your tax position shows tax owing, or a tax repayment due, you should receive a copy of the calculation on a form P800. If you are newly retired and have tax to pay you may receive a simple assessment form PA302. In this case, the tax will be payable by 31 January 2019.

If you complete a self-assessment tax return each year you should not receive a tax calculation on a form P800 or PA302, as all your tax should be dealt with on your tax return. However, sometimes the HMRC computer does not link the PAYE record to the self-assessment return, so duplicate tax calculations are issued. If you receive a form P800 or PA302 for a year for which you have submitted a tax return, please contact us immediately.

If you have other income such as rent, dividends or interest, those amounts may be estimated on the P800 calculation, so check the figures carefully against your bank statements. HMRC often uses estimated figures of pension contributions or charity donations based on what was paid in previous years. It is important to check that any tax relief given for such payments relates to the correct year to avoid underpaying tax.

Potts & Co - Accountancy & Business Advice

Check Your PAYE Code For Interest

By | HMRC, PAYE, Potts & Co Accountancy & Business Advice News

When you receive your PAYE code or tax computation, carefully check any amount of interest shown as received.

HMRC regularly receives details of interest paid by banks and building societies to individuals. In the past, it has used this information to check the amounts on tax returns. However, it is now inserting the actual interest receipts into tax computations (form P800), and simple assessments (form PA302).

HMRC is also using 2016-17 interest data as a proxy for the interest expected to be received in 2017-18 and 2018-19 and is amending PAYE codes (forms P2) accordingly. Interest on joint accounts should not be used but the fact that the account is held jointly may not have been reported accurately by the bank.

You won’t pay tax on interest if it is covered by your personal savings allowance of £1,000 (£500 for higher rate taxpayers). Where you have little earned or pension income, your interest may be covered by your savings rate band of £5,000.

If you believe the figures in your PAYE code are incorrect you can ask for an amendment using your personal tax account; ask us how.

Potts & Co - Accountancy & Business Advice

Simple Assessments Have Arrived

By | PAYE, Personal Tax, Potts & Co Accountancy & Business Advice News, Self Assessment

The self-assessment tax return system has been with us for over twenty years now and it is certainly not simple. Pensioners, in particular, find that they are required to submit a tax return each year to report their various different sources of pension and savings income and to pay a small amount of tax.

To avoid sending tax returns to such individuals, HMRC has started to issue what it calls a ‘simple assessment’. This is a tax calculation, with a tax bill attached.

The simple assessment arrives as a letter and we should receive a copy as your tax agent. The letter will state when the tax is payable, normally by 31 January 2018. The simple assessment represents HMRC’s view of what your income is and it may contain estimated figures, so it is important to check the tax calculation against documents such as bank statements and P60 forms. If you don’t agree with the figures on the simple assessment, you can query them with HMRC or we can do this for you.

The taxpayers who are due to receive a simple assessment for 2016-17 are:

• those who started to draw the state pension in 2016-17 and who have total income just over their personal allowance for that year; and

• those taxed under PAYE who have an income tax liability for 2016-17 which can’t be collected through their PAYE code, perhaps because it is too large.

In future years many more taxpayers will receive a simple assessment instead of a tax return. However, if you have variable amounts of income, such as insurance policy gains or rental income, the simple assessment procedure will not be appropriate. In that case it is best to stay within the self-assessment system so that you can report your income, expenses and gains accurately every year on a tax return.

Potts & Co - Accountancy & Business Advice

Why Your P800 May Be Wrong

By | HMRC, P800, PAYE, Potts & Co Accountancy & Business Advice News

The P800 is the tax calculation produced by the HMRC computer when you have not paid the right amount of tax under PAYE in the previous tax year. If you normally complete a personal tax return you should not be sent a P800 tax computation, as the tax calculation is done when you submit your tax return.

Interest paid by banks and building societies has been paid without tax deducted since 6 April 2016. If you received interest with tax deducted in 2015-16, the same amount of interest, including the same amount of tax deducted, may have been carried over to your 2016-17 P800 computation. The fictional tax, which the computer assumes was deducted in 2016- 17, is shown as being repayable to you!

The P800 computation can be corrected by phoning HMRC, but you need to spot the mistake first. We’d be glad to help check any P800 tax computation you receive.

Potts & Co - Accountancy & Business Advice

PAYE codes are changing

By | HMRC, PAYE, Potts & Co Accountancy & Business Advice News

The introduction of real-time information (RTI) was supposed produce more accurate employee PAYE codes, but that benefit hasn’t materialised so far.

However, from July 2017 HMRC will start to use the RTI data to update employees’ PAYE codes on a month by month basis. Employees may see more deductions in codes for 2017-18 as this will be a transitional year.

Any tax underpaid for 2016-17 will be recovered alongside any remaining tax underpayments due for 2015-16.

Note that no more than 50% of a person’s pay can be deducted through PAYE, so large tax underpayments may have to be carried forward or assessed separately.

HMRC will encourage employees to access their personal tax account online through GOV.UK to understand the changes to their PAYE code, rather than ask their employer. Employees can also query their tax code through their personal tax account and request changes if they think the code is wrong.

Potts & Co - Accountancy & Business Advice

PAYE penalties

By | PAYE, Potts & Co Accountancy & Business Advice News

As an employer you need to make your full payment submission (FPS) to HMRC on or before the date you pay your employees. Penalties can apply each time an FPS is late, but HMRC generally doesn’t raise a penalty if it is submitted within three days of the date it is due. How-ever, if you are persistently late with submitting your FPS, HMRC will consider imposing a penalty.

HMRC has said it will ‘risk assess’ all late filing penalties, which means that no PAYE late filing penalties will be issued without human consideration. Where a late filing penalty is appropriate, it is issued as part of a batch once per quarter, in the second weeks of May, August, November and February.

If you do receive a penalty, you can appeal through the PAYE online system or by using a paper form, or we can do this for you. If you use the online method, you must select a reason for the appeal using the drop-down menu and provide further facts to support your excuse for being late, in the information box.

Potts & Co - Accountancy & Business Advice

Quarterly Reporting For Agencies


Employment agencies are required to report to HMRC the payments they make to workers they place with third parties, if those workers are not paid under PAYE.

This requirement covers any organisation who finds work for an individual, which can include many agencies or intermediaries. One-man companies who only find work for their sole director are, however, exempt.

This reporting requirement has been in place since 6 April 2015, but many businesses are unware that they need to report to HMRC at least four times a year, within one month of the end of each quarter. For the quarter to 5 January 2017 the report must arrive with HMRC by 5 February 2017. If the agency has not supplied any workers in the period it must submit a nil report by the same deadline.

The report must be submitted online using a prescribed spreadsheet. HMRC are starting to issue penalties for late reports. These start at £250 for one late report in twelve months, increasing to £1,000 for three or more late reports, then £600 per day for a continued failure to report on time.

Where your business is involved in finding work for others, we should talk about your reporting requirements. Don’t ignore any penalty notice you receive from HMRC.