By Dave Watkinson
I was always taught as a youngster that the only person never to make a mistake was the person who never did anything.
Time has proven that statement to be very true, and that includes the tax office which has recently made a couple of errors affecting some but not all taxpayers.
The first came to our attention when a number of clients received an unexpected tax refund. We had advised them of how much tax was due in January and they had paid that amount based on our advice. We were then surprised when they received a substantial part of that payment back. When we looked into this we found that the refund equalled the first payment on account of their 2018-19 tax liability.
The tax office have now stated that this was due to a computer error. They have stated that people can pay what should have been due in January and also July, but if people do not do so then they will not be charged any interest or penalties. However, if you are one of those affected then you should ensure that you put this liability to one side as you will be facing a large tax bill next January.
As an example, if you had a tax liability for 2017-18 of £4,000 then you would normally have paid £2,000 in January on account of 2018-19, with a further payment of £2,000 due in July. If your final liability for 2018-19 is £5,000 then next January you would have to pay the balance of £1,000 plus £2,500 on account of the following year, making a total payment due of £3,500. However, that January payment becomes £7,500 if you are one of those affected by this error. If you are not prepared for this then it will come as a very nasty shock, and could prove additionally expensive if you are unable to meet the liability immediately as any part of the £5,000 liability (in the example above) that remains unpaid by the end of next February will be subject to a penalty of 5%, or £250!
The second error is smaller but could prove even more expensive in the long term. Some people in self-employment have not been asked for the Class 2 NIC liability, which was £148 for 2017-18. Whilst this is only a small amount, payment of Class 2 counts towards your retirement pension entitlement. This error may, therefore, affect your annual income when you eventually become entitled to receive your pension. If you think you may be affected then you should be aware that you can make this payment voluntarily to maintain your pension entitlement.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.