can somebody explain this tax problem

[cris r]

My husband is driving me insane. He came out of work at Christmas it was a high paid job, tax was paid through the company. In addition we rent a property out for 950.00 a month. We have no morgage on the property We are up to date with the tax having paid Januarys installment. We have another installment due in Think its June ( not sure ). Now my husband says we will have another bill the same amount in 2012 is this correct. Even though he is now unemployd I dont really understand it all and between my husbands doom and gloom outlook and my ignorance of the whole tax thing. If anyone can explain please be gentle about it and dont use too many big words Ha Ha. Many Thanks

[themas]

I don't think you can get any reliable advice definitive on here about this. A lot depends on the amount of tax which is due & the period it relates to.

If your husband's income from his job ended in December (you don't say whether he had any pay in lieu of notice, or any large redundancy) then he just might be due a tax refund in relation to the tax already deducted by his employer.

So far as the rent is concerned you say "we" rent it out. If it is jointly owned then half the rent is presumably yours & any tax on that half would be due from you & would not be affected by him becoming unemployed.

Assuming your husband remains unemployed then his only income for 2012-13 tax year will be the rent, contributory job seekers allowance & any interest etc. from savings. As such it is almost certain the tax due will be much less than you have been paying. However, this does not mean you won't get a further demand in June because that could relate to tax for the 2011-12 year.

You need to look at your past tax returns &/or talk to the Inland Revenue to get a clearer picture of your liability.

[cathfromsaron]

self-employed people pay tax and NI retrospectively on profit (and monthly for NI), and landlords fill in a self assessment every year!

can't you ask the local tax office anymore?

[1eyedjack]

It seems likely that you are both completing self assessment tax returns. You need to do separate calculations for each of you. The due dates of payment may coincide, and you may mentally think of it as a single household cost, being the sum of the two, but it is easiest for this purpose to separate them out.

For your husband, some of the tax is collected through PAYE (or was until Xmas) but for each of you there would be a residue of tax payable directly. The direct payments fall due on potentialy three due dates: 31 January in the tax year, the following 31 July, and the following 31 January.

Trying to keep things simple (there may be complications depending on circumstances and amounts), on the third instalment you are required to pay the excess of any direct total liability over the total liability for the previous tax year. Any liability that does not fall due in that instalment is divided equally between the first two.

In calculating how much to collect for the first two instalments it is initially presumed by HMRC that the total direct liability for a year will, until they know otherwise, exceed the total for the previous year. This then works out that the whole of the previous year's liability is payable again on account of the current tax year in two equal instalments on 31 Jan in the year and the following 31 Jul.

If your total direct liability goes down from one year to the next, then the originally calculated payments on account for the second year will be overstated, being based on the previous year's higher liability. If you pay these instalments in full then the excess will be repaid when the tax return is filed. However you can anticipate this by applying (if justified) to reduced the payments on account so as to match your estimate of the true final position and so avoid a substantial overpayment up front. There are interest charges for miscalculations.

Thus, on 31 Jan 2012 you will have paid (maybe) a final instalment for 2010-11 tax year and the first instalment for 2011-12. On 31 Jul 2012 you will be asked to pay a second instalment for 2011-12. Unless you have applied for reduced payments on account of 2011-12 these will be based on 2010-11 income.

Your husband may well have overpaid some tax under PAYE, because he will not have received the benefit of a full year's personal allowances. If he has been a higher rate taxpayer then the reduction in his total income may also reduce the direct liability under SA. These may justify applying (in his case, perhaps not yours) for reduced payments on account.

However, we have now just about got to the end of the 2011-12 tax year. On 06 April 2012 you will be able to complete a 2011-12 tax return, each, which will finalise your liabilities for that year. If you get that in early, and in particular before 31 July 2012, all the figures will self-correct themselves before you have to make the July payment.