Arghh!!! Am I the daftest tax planner or what!!??

[Monofonic_Soletrader]

Hi

I'm a newbie on the board and the severity of my personal tax nightmare is just beginning to unfold. I'm primarily posting as a warning to others in my position and have taken professional tax advice as a result of my situation - but if anyone has any opinions/advice it would be much appreciated!

My accountant just filed my tax return yesterday and the tax due figure almost gave me a heart attack..

I am a sole trader - i derive income primarily as a musician but also run a partnership in which I am a 50/50 partner with someone else. I also run a Ltd company, again as a 50/50 split with the same individual.

My income as a sole trader was added to my share of my partnership income and tax was due as one would expect. With the majority taxed at the 40pc band..

During the course of the tax year my Ltd company (which has yet to file accounts) borrowing a substantial amount of cash from the partnership. To my shock this could not go down as a cost of sales meaning the partnership income on which it is taxed is substantially higher than I thought with no cash in the bank remaining to pay the tax bill! (as most of it had been lent to the partnership)

In the meantime the Ltd company has started to make a profit and acquired a reasonable amount of cash from sales.. however if I now immediately transfer any of this money to my personal bank accounts to pay my enormous individual tax bill I will be again taxed on it in the next tax year(probably at the 40% band!!)

In addition to this - all the drawings I'd made from the partnership as a 'salary' were not deducted as expenses as I am in the eyes of the Revenue one of the partners therefore could not benefit from a salary without being taxed on it.

All of the below leaves me with a tax bill that is nearly 48% of my 'income' and with the same payment on account again..almost £40k on a £66k income!!

rolling into the next tax year with the companies making the same profit roughly as they were >April 2008, we will be faced with exactly the same scenario again for the next tax year..

All of which effectively makes me as good as bankrupt even though the companies are all profitable..

Everyone I speak to gives me the same answer.. "You should have planned your company structures better". That's of very little comfort to me right now... I'm livid..

Take heed and learn from my mistakes if you can ! especially if you're a creative type and not a natural businessperson!!

 

[YODspica]

just think how well your taxes are being spent, you might feel better.

 

[CassioAcc]

Thank you for the post as it gives a good insight into why you should seek professional advice. Obviously it goes without saying that I sympathise with your situation.

Hopefully your accountant will help restructure you situation and be in a postion to reduce your payments on account and tax bill for next year.

 

[Gillie]

I am surprised your accountant did not advise you on the best tax structure of your set up!

 

[Monofonic_Soletrader]

my previous accountant (who I have thankfully now parted company with) advised me to set up the Ltd company separately.. if I'd had one Ltd company incorporating the partnership, the intercompany loan could then have gone down as a taxable expense and my personal liability would have been waaaay reduced.. *ANGRY!!*

 

[DIY Accounting]

Lot of general statements making it difficult to determine the total income of each activity and the tax liability and how it occured.

Best to sit down with the accountant to gain both an understanding of the profits and tax from each activity and plan the financial future.

40k tax on 66k income is wrong
very roughly 18k would be closer plus 50 per cent extra towards current year tax

 

[Monofonic_Soletrader]

thanks for the advice.

It was indeed around 18k on 66k - but the payments on account are 20k - 10k due now and 10k due in july..this is the part of it all I still genuinely can't understand..

to a certain degree I can live with the 18k as I was expecting something of that level - but it's the 20k on account which will really prove crippling..

 

[DIY Accounting]

The 18k would have been tax on income up to April 08
You get assessed at a similiar level this year which we are 10 months into so 50 per cent of likely tax due this year paid Jan and other 50 per cent July so by July if similiar income you will have paid your tax for this year too.

If your income is not 66k this year you can provide HMRC with information and ask them to reassess this additional 20k

 

[Monofonic_Soletrader]

Thank you for the advice sir. It has sweetened the blow somewhat..so effectively, what you are saying is that the 10k due now and the 10k due in July are basically my tax payment for this year if I have a similar income?

 

[DIY Accounting]

Thank you for the advice sir. It has sweetened the blow somewhat..so effectively, what you are saying is that the 10k due now and the 10k due in July are basically my tax payment for this year if I have a similar income?

Yes that appears to be the case.

 

[dp0848]

just think how well your taxes are being spent, you might feel better.

War in Iraq, baling out banks, useless IT systems etc etc etc

 

[Jenni384]

War in Iraq, baling out banks, useless IT systems etc etc etc

argh............

 

[Anna Chandley]

If the company has significant amounts of cash why don't you use this to pay back the loan from the partnership. You can then withdraw cash from the partnership to pay your tax.

There would be no tax to pay as a result of the above transactions as you will not have received any income.

Anna

 

[HSLS]

Yes, the payment on account caught me out too - although in not quite as a dramatic way as your situation! It does work out in the end, and I found I was even due a rebate this year, which reduced my payment a great deal for January.

 

[KidsBeeHappy]

Right, Payments on Account; the revenue have been told by GB to be nice to us, so if you phone them up NOW, ie tomorrow, and tell them that you would like to make an arrangement to pay, you and they will agree terms for the £18k ish for last year, and how to phase the 2 installments on account through the rest of the year. They will probably seek to secure this with a direct debit set up.

The one thing that the revenue know right now is that there is no point chasing money from folk that don't have it. But all they do want is contact, communication and somekind of an agreement which shows you know what you are owing, and you have a plan in place to address it.

Phone tomorrow. I'll go and see if I can find the number. One of the accountants may already have to hand.

 

[CassioAcc]

Here is the number if anyone needs it - HMRC Business Payment Support Service is on 0845 302 1435