HELP ... wonky maths, or I'm going mad

HELP ... wonky maths, or I'm going mad

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Hi

Firstly apologies to all who looked at this, picked up the stupid maths error of mine, and then wondered what all the fuss was about. As I originally posted, I think I was going mad due to what looks to me like a totally circular bit of logic. As it is, I started off using the original figures, but when the question came up badly formatted, I redid it, but simplified all the figures to try to make it more comprehensible...... .............

Anyway, I received a tax demand for a client of mine where I originally calculated the assessment as being £4,000 overpaid ... used HMRC's own online software to submit the tax return, and HMRC's own software duly churned out the SA302 showing this £4,000 overpaid. So far so good.

Then HMRC started sending out all sorts of adjustments, all of which missed out something from the originally submitted figures, or put things in which were never there and should never have been there. Four letters later, I end up with what looks to me like circular logical chaos. Am I right? Or have I just gone insane over what should be very simple figures.

All the figures are set in stone apart from the £2500 part of HMRC's £6500 adjustment figure, which to me looks like circular logic. The calculations goes like this..............

Phase 1

Assessment +£6,000

Less Total tax paid -£10,000

Therefore tax overpaid -£4,000

ADD HMRC Adjustment +£6500

Therefore Balancing Charge £2500 (or balancing payment, if you like)

Phase 2

BUT HMRC's adjustment of £6500 is made up as follows...

  Refund of tax overpaid +£4000

  Balancing Charge + £2500

    Total adjustment +£6500

When you look at how HMRC got to their adjustment figure of £6500 in Phase 2, it is based on that very same £2500 that this £6500 throws up in Phase 1. So, whereas all the other figures are fixed and correct, this £2500 could be any figure, and their maths would still tie up. Alter this £2500 to say £7k, and the adjustment of theirs then becomes £11k, which in turn produces the opening figures of £7k and balancing charge of £7k ... which would be fine if the £2500 was based on anything other than these calculations, but it isn't ... it is a figure plucked right out of the air.

 

So to my mind, which has now just about imploded, this means that HMRC's adjustment of £6500 already includes the £2500, which is itself the byproduct of that adjustment ... so they've put it in twice over ... or have I just lost my marbles?

 
Any help, as well as full bottles of exceptionally old single malt, would be much appreciated.
 
KH

Replies (18)

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By KH
07th Sep 2015 17:48

I'll resubmit this question with correct formatting ... apologies

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Replying to Red Leader:
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By Manchester_man
07th Sep 2015 17:58

Indeed

KH wrote:

I'll resubmit this question with correct formatting ... apologies

Indeed, too messy for me to read. I've had a similar problem (formatting) in the past, so not sure how you can overcome this but perhaps others can advise, then we can try to help with the original question

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By KWest
07th Sep 2015 19:20

Balancing Charge?

In any case why are HMRC citing a balancing charge in the absence of fixed asset disposals?

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By Tim Vane
07th Sep 2015 19:51

I'm guessing you don't deal with SA clients much. "Balancing charge" in this context has nothing to do with capital allowances but is the charge that arises when the net liability for the year is greater than the payments on account calculated with reference to the previous year. It is often (but not always) the same as the balancing payment, and is usually due on 31st January.

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Replying to stepurhan:
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By cparker87
07th Sep 2015 21:13

..

Tim Vane wrote:

I'm guessing you don't deal with SA clients much. "Balancing charge" in this context has nothing to do with capital allowances but is the charge that arises when the net liability for the year is greater than the payments on account calculated with reference to the previous year. It is often (but not always) the same as the balancing payment, and is usually due on 31st January.

Looks to me like the liability is less than the tax deducted.

To the OP, just get in touch with HMRC. None of us can help here other than to agree it seems like a [***] up.

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By Matrix
07th Sep 2015 20:43

But none of the numbers add up to £6,500. 

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By Tim Vane
07th Sep 2015 21:43

Just to clarify - I wasn't suggesting that the numbers add up; I was just refuting the suggestion by an earlier poster that "Balancing Charge" has anything to do with assets, which in this case it definitely does not.

So if the assessment was £6,000 and the prior POAs were £10,000 then £4,000 is overpaid for last year. One would assume that there are also 2 further POAs required for this year (of £3,000 and £3,000) to make the total outstanding (at 31 July) £2,000. I have no idea where HMRC have got £1,500 from, unless there was a claim to reduce POAs. If POAs had been reduced to £2,750 then that would get to the £1,500 figure outstanding (£6000 - £10000 + £2750 + £2750). But I agree that the statement doesn't say that.

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By User deleted
07th Sep 2015 21:54

Single entry system

The problem is HMRC follow single entry system whereas we accountants follow double entry system. Looks like it may have something to do with POA, as Tim says.

 

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By Tim Vane
07th Sep 2015 22:53

*Gesture*

(Tipping my hat to Basil once again)

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By KH
08th Sep 2015 09:02

Apologies ...

HI All

Thanks for looking at this, and apologies for the mess. I've rephrased the question to try and make sense of it. As an aside, the tax years are irrelevant, since all the figures in it are set in stone apart from the adjustment figure of £6500 which HMRC have just thrown at me. And that £6500 rests on two figures, £4000 of which is set in stone, but the other one of £2500 has no other corroboration outside of the calculation. Since the calculation looks circular, I reckon the £2500 could be any figure and the whole calculation would still tie up.

Now if that £2500 was based on anything other than the calculation, it would be fine. But is isn't. It doesn't tie up to anything outside of the two phases of this calculation.

So to my mind that looks like crazy logic for demanding a £2500 balancing charge. Why not substitute the £2500 with another figure? Everything would still tie up. So unless HMRC can corroborate the £2500 from some other source, I reckon we have nothing more than circular logic. Yes? NO?

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By paulwakefield1
08th Sep 2015 09:03

I may be missing the point

(odds on bet in fact) but isn't the OP's issue that the correct liability for the year remains at £6,000. Taxpayer paid £10,000 and received (I assume) refund of £4,000. So far so good.

Then HMRC add on a mysterious £1500 balancing charge and say you owe us £1500. Unless it is tied up with POA's as per Tim Vane's post, it seems odd!

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Replying to Cheshire:
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By KH
08th Sep 2015 11:20

It's that £2500 which has no life corroboration ......

Hi All

Thanks for taking the time to try to unravel the mess I made of this question ... as I said in the original post, now amended twice over by me, HMRC's calculations left me totally brain-fried (and they still haunt me). And I'd like to add that the calculations I showed were put together after digging in 5 or 6 different HMRC documents. So although the end set of calculations look reasonably straightforward, they took some arriving at. In other words I had to piece together HMRC's line of reasoning from various online files.

However, by trying to rephrase the question to make sense of it, I can see that my utter confusion was well-founded. The new figure of £2500 that appeared out of the blue in HMRC's calculations was the problem. So far it has no foundation outside of the equations ... i.e. it is a totally new figure thrown up by HMRC, without any justification other than it, plus the known figure of £4000 tax refund, add up to their adjustment of £6500. This would be fine if this £2500 were merely the end product of the calculations. But it is not only the end product, it is also the starting point, so it has to be circular logic ... i.e. replace the £2500 with say a random £10k, and HMRC's adjustment changes accordingly (the £6500 becomes £14k), so throwing up a new balancing figure of £10k, which is the random figure we've just changed the £2500 to....... ......................

Or, putting this another way, the original overpaid tax of £4k was the correct outcome for this assessment. But now HMRC is asking for an additional assessment of £2500, based on nothing more than the circular logic of their calculations. It's not as though they have anything else to base this £2500 on. Brain fried!

To me this is seriously worrying. It's like saying that my salary of £10k plus another "random" £5k equals £15k. So where did the £5k come from? Well, since the total is £15k, you need an extra £5k! But where did the total of £15k come from? Easy, it's your £10k salary plus £5k.

I remember way back my father had a cartoon book by Thurber. The index was great. Look up "Beole" and the index said "see Malleode". Look up "Malleode" and the index said "ref Beole".

If this looks like a correct understanding, based on the scant facts I've given, I'd appreciate corroboration before I even attempt to explain this to HMRC.

 

 

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By petefa
08th Sep 2015 10:13

You need to find out what the £2,500 is.  Why don't you ring the Agent Dedicated Line and ask them.

 

If the client is in PAYE, it could be an underpayment brought forward from an earlier year in their code number.

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By SteveHa
08th Sep 2015 11:15

Amended calculation

Why not just ask HMRC for their amended calculation, which should clarify everything?

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Replying to plummy1:
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By KH
08th Sep 2015 11:29

HMRC's amended calculations are the problem

It's HMRC's amended calculations that are the problem. Originally I submitted a tax return, including salaries, tax paid on salaries, dividend income, BiKs, expenses in employment, etc. etc etc where the outcome was £4k overpaid tax. And that was/is the correct outcome. Even HMRC's own software agreed. It was not as though any taxable incomes were missing. Everything was in that original tax calculation and return.

Then HMRC send out amended returns with some of the original figures missing (i.e. keep in the BiKs, but omit the corresponding employment expenses, or even adding in Car Benefit when there was no possibility of car benefit for that year). Anyway, after many attempts, they go back to the original figures (YEAH!), but with one amendment right at the end for "Repayments of tax", made up of two figures, the correct £4k plus another £2500. After much digging I find that none of HMRC's files show any repayment other than the known £4k, and that the sole source of the £2500 is the amendment itself. And the justification for that appears to be the starting point, which is based on the amendment, rather than on any other facts ... so circular logic, as per my recent post (about 15 minutes ago).

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By jndavs
08th Sep 2015 11:18

What exactly is the problem here?
The £2500 is simply the revised assessment £12500 less paid £10000 = £2500.

What you need to find out is why HMRC revised the assessment from £6000 to £12500.

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Replying to ireallyshouldknowthisbut:
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By KH
08th Sep 2015 17:13

This is the fourth time I've done this (or similar)

Yes, you're absolutely right, but every time I send in a letter stating quite clearly (i.e. not at all like my original post!!!!) where they have gone wrong, and what the actual situation should be, they wait three months and then send out another but different garbled version ... this last one is at least reminiscent of the first submitted return, right up to the point where they add in an adjustment at the end that, to my mind at least, is circular (i.e. the end result "justifies" using that result in the opening line of the calculation, so forcing the calculation to come that result)... So it's another letter (try explaining this one on the phone to a minion!). Hey ho! The fun of being an accountant! Fortunately this is the first time in over 40 years that I've come across a circular logic process from HMRC ... look up Beole in the index, and it says "see Malleode". Look up Malleode in the index, and it says "ref Beole". So we now have a Thurber HMRC system in force.

Thanks for your input ... and yes, you are absolutely right. But do I hold out any hope that this will help? Guess....... ...............

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By SteveHa
09th Sep 2015 11:28

Ring the SA agent priority line and discuss it with them. No long waiting and usually more knowledgeable staff. You can probably have this fixed in 10 minutes.

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