A leading Derby accountancy firm has issued a warning to businesses in the city – particularly those hundreds of UK companies set up during the pandemic – as the deadline for those wanting to pay off their tax bill looms.
Award-winning Vibrant Accountancy, based in Lodge Lane, says that it is also aware of chaos at HMRC with thousands of people waiting months for money owed to them and businesses being chased for money they don’t owe.
Accountants have become so concerned nationally about their clients that representatives of all four professional bodies – the Chartered Institute of Taxation, the Association of Taxation Technicians, and the Institutes of Chartered Accountants in England and Wales and Scotland – have written to Myrtle Lloyd, the director-general of customer services at HMRC expressing their concern.
Bev Wakefield, Co-Founder of Vibrant Accountancy, said: “Repayments are becoming a nightmare to get hold of – as we have seen in the news – and are not being paid out efficiently.
“It’s a major concern for businesses and individuals, especially as more tax payments are due by July 31, which is second payment on account day. This is basically the way you have to pay your personal tax bill, which many business owners do; first instalments are paid on January 31 (before the tax year has finished), second on July 31 (just after the tax year), with any remaining balance due from the year being paid by the following January 31 (the January following the tax year).
“Each payment on account is 50% of the tax due for the previous year, and is an advance payment of tax for the 2021/22 year. Usually tax is paid on January 31 following the year end, however, if you have taken income and means that you are taxed on your tax return, more than £1,000 or less than 80% of tax is deducted at source; either through payroll or your pension, then you have to pay payments on account.
“These can catch you out in those first years of setting up a business as a growing business as, all of a sudden, you may go from paying £1,000 in the first year on January 31, 2023 say, and then this next year you have more earnings and not only do you have to pay the tax for January 31, 2024, you also have your first payment on account which is 50% of the tax again!
“This is why forward planning the numbers is so, so important and something which we do for a lot of the businesses we work with.”
Bev has given an example of how this may work.
She said: “Nigel has had a fantastic year with his new business and ends up with a tax liability of £6,000. As this is his first year, he pays all of this on January 31, 2023. However, as his income is all via dividends and a small salary, he is not deducting tax at source. And, due to the amount, he will be due to pay payments on account for the 2022/23 tax year at 50% of his tax liability for 2021/22.
“So Nigel will pay £9,000 on January 31, 2023 and a further £3,000 payment on account on July 31, 2023.
“Now assuming Nigel’s second year doesn’t go quite so well and he now expects that his tax payment will only be £2,000 for 2022/23. He will need to look to reduce his payment on account at the point he has done. He can apply to HMRC to reduce his payments on account and therefore not pay the £3,000 each payment on account.
“It is possible to apply to lower your payments on accounts – like Nigel – or, even better, you may have already done your tax returns before July 31 and we don’t have to guess whether your income has gone up or down.
“Claims need to be made in writing to HMRC, giving reasons why payments on accounts should be reduced – and HMRC are fairly relaxed about this. However, don’t reduce this too far as if you should have paid more in your payments on account, then HMRC can charge penalties.
“The maximum penalty is 100% of the tax underpaid, although only if HMRC suspects this was done fraudulently or negligently. That said, interest will accrue.
“If you overpay, HMRC will pay you repayment interest, which is tax free.”
The investigation into issues at HMRC was conducted by The Times, whose analysis of the HMRC dashboard found that disputes over a tax overpayment took 138 days instead of 15. Some queries, though, are taking almost a year to answer and urgent letters and emails have piled up at regional offices.
“If you have any concerns,” said Bev, “you can complain via gov.uk. HMRC have said that 93% of complaints were dealt with at this stage but, any remaining complaints can be escalated to what HMRC calls Tier 2.
“HMRC have said that they will consider refunding any reasonable costs caused by mistakes, but you’ll need to make sure that you keep documentation and receipts.”
