I have already prepared my 2019/20 tax return and I have a small tax bill. My main source of income is employment. Can I get this additional amount collected through PAYE?

It is possible for HMRC to collect additional tax payments through your PAYE income (either salary or personal pension). The way this is achieved is by reducing your tax code for your PAYE income. This reduces the amount of your tax-free personal allowance by the amount required to cover your additional taxable income, resulting in additional tax being collected through PAYE. Many people prefer this as it spreads the cost over the following year instead of it being due as a single lump sum. 

There are some restrictions to being able to pay your tax bill through PAYE. The most obvious is that you must have employment or pension income that is sufficient to allow the tax due to be collected. The other restrictions are.

• The amount to be collected cannot be more than £3,000.

• The change would result in more than 50% of your PAYE income being taken as tax.

• The change would result in the tax taken under PAYE being more than double the amount that would have been due otherwise. 

If you submit your tax return on paper then you will need to take action soon as your return must be filed by 31 October to be eligible for this. Those who file online have until 30 December.

I have a small company where I am the sole shareholder and director. I have just been taking money out of the company as I needed it and now find I owe my company money. What are the consequences of this?

Except where it is simply repaying money invested, taking money out of a company has tax consequences. Normally the amount taken will either be as a salary taxed through PAYE or dividends paid out of profits. Where the amounts taken by director/shareholders exceed these, two rules come into effect to ensure the additional amounts are not taken as tax-free income. 

The first of these is the benefit in kind rules.  If a director/shareholder were to borrow money elsewhere they would usually have to pay interest on the loan. Where the amount borrowed from the company exceeds £10,000, then a taxable benefit is created. The value of the benefit is calculated as the interest that would be due on the amount borrowed based on the official rate of interest. This becomes taxable income for the individual and the company will also have to pay 13.8% Class 1A National Insurance as well. 

The second rule is known as the s455 charge. This is an additional corporation tax charge at 32.5% on the balance outstanding at the year-end date of the company accounts. This is due for payment on the same date as the normal corporation tax bill, 9 months and 1 day after the year-end. If the loan is cleared before that date, then there will be no additional charge to pay. Loans can be cleared by either paying money back into the company or by declaring additional dividends after the year end to cover the amount due. To prevent individuals temporarily repaying loans simply to avoid this charge, any amounts taken out within 30 days of being repaid are still subject to this charge. This 30 day rule does not apply to any loans cleared by additional dividends. 

These articles are for information only. If you need help with this or any other accounting or tax matters, please contact Steve Brown on [email protected]

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