Underpaid taxes included in tax code connundrum

Underpaid taxes included in tax code connundrum

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Dear All,

My client had a code change issued in January 2013 for the tax year 2013-14 in which unpaid SA liability of £1,756.49 was to be collected via PAYE in the tax year 2013/14.

Unfortunately the client’s only source of income on which PAYE is operated is a small pension payment which will only allow approx. £300 of the unpaid SA liability to be recovered in 2013/14. The other sources of income are dividends from a close company usually in the range of £30,000 per year – so again, no taxes due other than the notional tax credit.

We are now completing the 2012-13 return and I have a question regarding the Box 8 on page TC1, which is described as:
8. Underpaid tax for 2012–13 included in your tax code for 2013–14 – enter the amount from your PAYE Coding Notice

My question is how does one treat the answer to this box: If I fill in the amount of the underpaid tax for 2012-13 which was included in the tax code for 2013-14 as £1,756.49, this triggers a refund of this amount to the client as the client has no tax liability for 2012-13. However, as the HMRC will not fully recover the unpaid SA liability via the 2013-14 PAYE tax code, I doubt that a repayment should be triggered.

Or will the calculation of the 2013-14 tax liability (when we get to that point) restrict the personal allowance to the client per the P2 coding notice issued for 2013-14 such that the clients dividend income for 2013-14 is taxed accordingly. In which case, I would be correct in completing Box 8 now and triggering a tax refund so that the client is not taxed twice?

Thanks for your comments.

Replies (3)

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By stratty
06th Dec 2013 14:30

Contact HMRC

Call the tax office and ask them for entries required (in what was) boxes 18.1 and 18.2.

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By John R
06th Dec 2013 15:07

Box 7?

Surely the SA underpayment will have arisen in respect of 2011-12 not 2012-13 so, subject to the following paragraph, it should be included in box 7 of the 2013-14 tax return and nothing entered on the 2012-13 return. It will then be collected in the 2013-14 self-assessment.

However, there is a possibility that HMRC will realise that the collection cannot be made through PAYE and they may then decide to reinstate it as a SA liability for 2011-12 (plus interim payments) which will attract interest and maybe late payment penalties. You may therefore wish to suggest to the client that it will be advisable to contact the Revenue asap and that he may well have to pay the tax now.

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By selfeax
06th Dec 2013 15:55

Indeed John, you are correct. The SA underpayment arose in respect of 2011 - 12. I will ask the client to contact HMRC asap and make plans to pay the tax before the end of the current tax year.

 

thank you both for your comments which have been very useful!

 

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