Paying tax through PAYE or Tax Return

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    Paying tax through PAYE or Tax Return

    To give you a brief overview of my situation. I'm an accidental landlord, and have been letting my old property for around 6 months now. I have no intentions of getting/letting any more property in the future (one's enough!). I informed the tax office recently of this, and they have got in touch asking for income and expenditure for property to determine 2010-2011 profit.

    All fine so far, except they have stated in the meantime they have included an estimate of £2000 in my code for 2011-2012. I assume this means they will take the tax from my PAYE income.

    I plan to return the details they've asked for ASAP. What I want to know is should I accept this, or request to pay the tax after each tax year (as I'd expected to).

    I figure paying by PAYE may be easier for me. I don't currently fill out a tax return - will I need to if I pay my lettings income tax via PAYE?

    On the other hand, paying after filling out a tax return allows me to keep the tax portion of my income, save it and earn interest on it until a later date. As this is small amounts (around £4000 income pa before expenses) will it make a difference?

    Are there any advantages / disadvantages for either way of paying that I've missed?

    #2
    What you are missing is that (assume your tax bill is 2k each year):

    For 2010/11 you pay £2k on 31.01.12. Great.
    For 2011/12 you don't pay the tax on 31.01.13, but instead pay 1k on 31.01.12 and 1k on 31.07.12. So not very different from paying through PAYE.

    And the interest will be a pittance.

    Comment


      #3
      Thanks for that.

      Things that concern me are:

      1) Can I claim the same deductions/allowances when paying via PAYE (someone has mentioned doing it this way that IR may be more awkward about what is and isn't allowed whereas with a tax return they may not???)

      2) That as I won't know expenditure upfront (especially for repairs - of which I'm sure there'll be some), I will most likely end up overpaying, which I will then need to claw back over the following year with PAYE. With the tax return method presumably I'd just pay what's owed?

      Do either of the above make sense, or point towards using a tax return rather than payment via PAYE?

      Are there any significant downsides with the tax return method?

      Comment


        #4
        PAYE is not itself a tax- just a quicker way for HMRC to collect an employee's income tax.
        JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
        1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
        2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
        3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
        4. *- Contact info: click on my name (blue-highlight link).

        Comment


          #5
          Originally posted by jeffrey View Post
          PAYE is not itself a tax- just a quicker way for HMRC to collect an employee's income tax.
          No. It's a way for HMRC to collect tax from an employee.

          OP.
          1. You will still have to complete a tax return.
          2. You are probably better off from a free cash point of view, and from a knowing-how-much-tax-to pay point of view not paying the tax through PAYE. But the difference is probably a couple of fivers. If you happen to know it's NOT just that, then avoid PAYE route.

          Comment


            #6
            If the property rental income is 4000 and your expenses (letting agent fees , insurance, and loan interest ) is say 2000 = annual profit 2000 .

            Then if HMRC assume that 2000 income is gain from renting and is added to your paye income, your additional tax will be 400 or 800 deducted monthly from your pay = 33 or 67 per month less from your months pay. On the rent account side , you will be gaining a surplus of 2000 /12 = 166 per month.

            Are you happy with this ?

            Comment


              #7
              Thanks for the comments.

              After speaking to a few people about it (and another thread elsewhere), I think I'm going to go down the tax return route.

              I'd rather pay retrospectively, rather than in advance (using what the IR guestimates I'll earn).

              Comment

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