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?
Replies (18)
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Indeed
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
Balancing Charge?
In any case why are HMRC citing a balancing charge in the absence of fixed asset disposals?
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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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.
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.
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.
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!
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.
Amended calculation
Why not just ask HMRC for their amended calculation, which should clarify everything?
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.
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.