Inland Revenue

[Rainbow]

Hi All

I have been speaking to GT (Grant Thornton who are preparing our IVA) this afternoon as they asked me to send a forecast expenditure sheet for my husband he has a full time job but he is also a musician and plays in a couple of bands. I tried to explain that it is difficult to forecast what earnings he is going to get in a month let alone a year but they want me to do my best guess. But since putting the phone down I have recalled something else that GT told me - That they will be informing the Inland Revenue - the IR are not one of our creditiors does anyone know why they have to inform them. We do self assessment and always pay the tax bill before the end of January of the following year.
Thanks for your help - What a site! [8D][8D]

[MelanieGiles]

Hi Rainbow

The Inland Revenue have different rules with regard to self-assessment when someone enters into an IVA. As you will be going into your IVA during fiscal year 2007/2008, the whole of the tax deemed to be payable within this year will form a claim in the IVA. Obviously this cannot be calculated until 5 April 2008, so this is why you are being asked for estimates of his future income so that the contingent liability to tax can be included within the proposals.

And please be aware that even if there is no tax owing, the Inland Revenue are always circulated with proposals for self-employed persons just in case they feel there are any outstanding liabilities. The good side of this is that you will not have to pay any tax until the 2008/2009 year!

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[chris_]

Can I just add one very important point here, that is when my self assessment tax was added to my IVA they based it upon the previous tax year and my forecasts for the coming year, they then asked for lump sum payments (just as they would do in self assessment anyway) BUT when I worked out my actual tax it was a lot less than estimated.

I STILL HAD TO PAY EXACTLY WHAT WAS IN MY IVA PAYMENTS SCHEDULE - ALTHOUGH THE PAYMENTS WERE ESTIMATED THEY WERE NOT SUBJECT TO CHANGE.

This was a blow at the time because I believed that as in self assessment normally they would be adjusted accordingly. I had to pay 3 payments of £3K even though the tax for the period actually came to a lot less.

Make sure you understand exactly what you are signing up for in this respect and check everything with your IP.

Chris.

[ray_a]

Well I know a lot about taxation!

Basically you prepare your accounts for 2007 which forms the basis of assessment for 2007/08.

The paymets on account which are based on the 2007 figures are used for the payments on account for 2008/09. If your income is not so high then you can make a claim with the form 203 to reduce your payments on account. You must be careful because you must ensure that your income will be lower because if is not then the IR can charge interest.

I should point out that the Inland Revenue are more aggressive in placing people into bankruptcy than other creditors.

[chris_]

I can only speak of my own experience Ray and I was informed by my IP that the payments once included in your IVA form part of the IVA and that's it.

I did query it at the time because I assumed I would be able to reduce the payments accordingly - but you can longer class the payments as 'tax' rather they are IVA payments - or they were when I did my IVA.

Chris.

[ray_a]

Hi Chris

I was chased for my 2005/06 tax after reducing it for the year. I went into IVA in the tax year 2004/05. My payment had to be made to the Inland revenue. All my tax liabilities for 2003/04 and 2004/05 went into my IVA. Effectively they died in there. I was told that I was responsible for meeting the liabilities for 2005/06 onwards. Infact I got a severe letter from the IR telling me what they would do to me if I didn't!!!

Hope that helps Chris!

[chris_]

Ray,

All the tax that I owed went into my IVA PLUS as Melanie states above the tax due for the fiscal year my IVA was started in.

Because you don't know what the tax will be until you come to work it out futher down the line, the inland revenue insisted on 3 payments of £3K for the 6 monthly estimated payments normally due under self assessment.

After that period - IE the following fiscal year all payments were made as normal to the Inland Revenue.

The point I was trying to make is that those payments that go into the IVA will not be reduced if when you work out your tax it is less.

It is something to be aware of - they become IVA payments not tax.

Chris.

[Rainbow]

Thanks for the advice, Melanie, Chris and Ray. I can see the point of having to deal with the tax office now. We are only talking about a nett figure of approx £60 per month. Hubby is in a unique position really in that the music is a hobby for which he gets paid and usually breaks even over the year or makes a slight loss because of depreciation of instruments etc. In fact the tax bill that he gets at the end of the year is usually circa £200 which is down to the mileage and lump sum arrangement he has for using his car at work. I must admit to getting a bit alarmed at the £3K figure Chris mentioned, but he doesn't make those figures after expenses.

Thanks for the info though I hope that they don't want payments of £3K [:p]

[chris_]

Rainbow,

Sorry to cause you alarm, but the £3K figures were MY tax levels as I was totally self employed.

The issue over self assessment payments into an IVA should be taken into consideration when self employed are entering IVA's, but it it nothing to be alarmed over as long as you understand how it works.

Chris