One of the most exhilarating moments for any tax-return-submitter is receiving that much-awaited notification, confirming your submission has been accepted and finalized. Yet, this jubilation can sometimes be short-lived when you lay eyes on the final bill. The sentiment can vary from sheer elation if it aligns with your expectations, or a sinking feeling if it’s on the higher side, which, let’s admit, is never a pleasant surprise. A thought that often pops up is, “Why on earth is my tax bill this high?”
Diving Deeper: Possible Reasons for a Hefty Tax Bill
Before you lose your cool, take a breath. It’s entirely possible that the seemingly exorbitant number is accurate. However, on the flip side, there could have been an oversight or misstep. Here are a few potential explanations:
1. Miscalculations on Your Part
Mistakes happen. There’s a possibility you overlooked an entry or misunderstood an element on your expense tracker, resulting in an unexpected bill. Our team of seasoned accountants prides itself on meticulousness, ensuring every cent is accurately tallied. Remember, fluctuating NI rates and payments on account can easily skew totals. If you’re unsure or second-guessing, don’t hesitate to ask for assistance. It’s far simpler to make adjustments now than revisiting and reworking your entire tax return later. Utilize our handy calculators for added guidance.
2. Overlooking Your Employment Income
This is an all-too-frequent oversight. Typically, when completing your tax return, you may not consider your primary source of income which is typically taxed through PAYE. Instead, you’re focusing on undeclared earnings that must be reported to HMRC. Yes, we’re pointing at the freelancers, eBay entrepreneurs, and high-earning individuals out there.
While collating data for your tax return, it’s imperative to include every penny earned, even if tax has been deducted at source. It’s essential to remember that you can wear the hats of both an employee and a self-employed individual. A tax return encapsulates your taxable income for a specific fiscal year, inclusive of all revenue channels, regardless of their taxed status.
3. Inaccuracies in HMRC’s Records
In some instances, discrepancies in HMRC’s records might be the culprit behind an inflated tax bill. If you’ve recently transitioned in your job, or believe there’s pertinent information that HMRC should be apprised of, it’s best to contact them directly. Any outdated or erroneous data can lead to unnecessary fines and penalties. Proactively addressing these discrepancies, like having your employer update your records with HMRC or submitting your P60s, can mitigate potential headaches. Always maintain thorough tax records; this proactive habit can be a savior in situations like these.
4. Misaligned Tax Code
A surprisingly common issue is being on an incorrect tax code. Familiarize yourself with these codes, especially if you’re in paid employment. Your tax liability varies based on your code, and this can significantly influence your final bill. Determine your tax code by inspecting your payslip, P60, P45, or simply by reaching out to HMRC.
Read More: How to update your tax code
5. Overlooking Additional Income Streams
Juggling multiple sources of income is financially rewarding, but only if they’re all accounted for in your tax return. To illustrate:
- Full-time employment salary: £40,000
- Profit from Etsy keychains (2023/2024): £5,000
- Profit from cryptocurrency trades: £20,000
Decoding the above, while your employer manages the tax obligations for your £40,000 salary, additional incomes have specific allowances. For instance, with the Etsy income, there’s a Trading Allowance of £1,000. Thus, only the excess £4,000 becomes taxable. Similarly, a Capital Gains Tax Allowance of £6,000 applies to your cryptocurrency profits, rendering just £14,000 taxable.
Such varied income channels necessitate filing a comprehensive Self Assessment tax return, encompassing all earnings.
If any of the aforementioned scenarios resonate, or if you suspect another discrepancy, the best course of action is to directly communicate with HMRC. For those seeking specialized guidance, our credentialed accountants stand ready to demystify your tax intricacies. Reach out for a consultation.
Facing Payment Challenges?
Understanding that financial crunches can occur, it’s pivotal to submit your tax return on time. For instance, the deadline for the 2023/2024 return is January 31st, 2025. If you’re grappling with payment, HMRC offers an accommodating payment plan option. By setting this up ahead of the deadline, you can evade late payment penalties. In exceptional circumstances, HMRC might exhibit added flexibility.
Should you encounter any of these predicaments, contact us here.