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Hi Mr F6 Tutor,
In the Mar/Jun 2017 past exam sample paper, Q31(a), the answer says that the balancing payment for 2015–16 due on 31 January 2017 cannot be reduced.
Why there is a balancing payment if the income tax payable plus the 4 NIC for 2016/17 tax year is smaller than that of 2015/16. I thought balancing payment only arises when the later year’s payable is larger than that of the previous year.
Paper link: https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f6/exampapers/uk/f6uk-2017-marjun-q.pdf
Answer link: https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f6/exampapers/uk/F6UK-2017-MarJun-Ans_Comm.pdfThanks.
The balancing payment for 2015/16 has nothing to do with what is owed for 2016/17!! The fact that 2016/17 tax payable will be lower than for 2015/16 is reflected in the reduced POA for the 2016/17 tax year
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Then where does this balancing payment come from?
This is an extension of your other continuing question which is based on a lack of understanding of the system which I had hoped would have been resolved with a look back to the OT course notes p.101, section 1 and associated example 1 which explain and demonstrate how to compute both POA and any balancing payments.
In this example the balancing payment for 2015/16 is the difference between the POA made for that tax year based on the tax payable for 2014/15 and the amount of actual tax payable computed for 2015/16.
The tax payable for 2015/16 will then form the basis of the POA for 2016/17, but if the actual tax payable for 2016/17 is going to be lower than in 2015/16 then the taxpayer may apply to reduce the POA for the 2016/17 tax year.- Topics: 43
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I have read again and again, the Kaplan text book, the BPP text book, the OT notes, the OT videos, the other tutorial videos of a local tuition provider, yet none of them addressed my question why there is balancing payment? Say you have 4000 and 5000 tax payables for two continuing years, so you need to pay POA 2000 * 2, and 2500 * 2 for the following two years, why there is still a balancing payment of 5000 – 4000 = 1000? How can you say the Taxman is not fleecing the tax payer money? For the past two years, your tax payable sum is 4000 + 5000 = 9000, yet with the balancing payment of 1000, the sum becomes 9000 + 1000 = 10000.
And another question, I still don’t get it if tax payable decreases, why there is a balancing payment in the Examiner’s answer?
It just doesn’t make any sense.
Look at the last answer I gave you to your “fleecing” question – you are NOT matching the POA to the correct tax year! In your example above the POA for your first year with tax payable of 4000 would NOT be 2000 and 2000!! The POA for that year would be based on the tax payable in the preceding year!! The POA of 2000 would be applicable to your second year with a tax payable figure of 5,000 resulting for that year in a balancing payment of 1,000.
- Topics: 43
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Let’s forget about the years and talk about numbers only. I have two continuing years tax payable, 4000 and 5000, the total payable should be 9000, and yet with balancing payment, it becomes 2000+2000+1000+2500+2500 = 10000. How can HMRC demand this extra 1000?
Sorry lukayl but until you listen to what I have told you and what every other publisher tells you, you will continue to get this wrong! Your reconciliation I repeat for one final time is invalid!
If your 4000 and 5000 are the figures of tax payable for years 1 and 2 then they form the basis of the POA for years 2 and 3 (NOT years 1 and 2 as you continue to wrongly state). The POA in years 1 and 2 are based on the figures of tax payable for years 0 and 1.- Topics: 43
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I already understand the year 1/2 and 2/3 point. That’s why I said let’s forget about years and focus on the numbers only. That still doesn’t explain away the extra 1000 balancing payment. Let’s say a hypothetical person, who self employed for two years, after which is exclusively employed by a company, and is paid totally on PAYE. So for the period of self-employment, he would pay year 2 income tax based on year 1 income tax/NIC 4 payable (say 4000); and on year 3 (which is the year he stops being self-employed), he pays year 3 income tax based on year 2 income tax/NIC 4 payable (say 5000). And because year 2’s income tax is larger than that of year 1, on 31 Jan year 3, he would also need to pay a balancing payment for the difference between the payable amount of year 1 and 2? So on 31 Jan year 3, he not only needs to pay the balancing payment of 1000, he would also have to pay 1st POA 2500, and on 31 Jul year 3 he would have to pay 2nd POA 2500. Now because there are no payments on account any more after year 3, everything is tidy. Can you explain when the total tax payable for the 2 years’ self-employment period is 4000+5000, yet he paid 4000 + 1000 + 5000 money into the HMRC?
Sadly you do not understand the point about the years which is why by refusing to listen to the answer you continue to make the same mistake.
In your 2 year example of year 1 = 4000 and year 2 = 5000, there would be no POA in year 1 and the taxpayer would pay 4,000, based on which 2 x 2000 POA would then be paid in year 2 with a balancing payment of 1000 – total tax payable 9,000 and total tax paid 9,000.
Year 3 there will be NO POA as self employment has ceased and PAYE would be used to collect tax from salary.- Topics: 43
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2 x 2000 POA = 4000 + 1000 balancing payment = 5000. How does it become 9000? I am increasingly confused.
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Okay, you said there would be no POA in year 1 and the taxpayer would pay 4,000. You tell me when does the taxpayer pay this 4000?
The usual payment date – the 31st January following the end of the tax year
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So assuming 2014/15’s tax payable is 4000 in my example, the balancing payment for 2014/15 would have been paid on 31 Jan 2016, amounting £4000?
It’s not a balancing payment as no POA have been made for the tax year, it is simply the due date for the taxpayer to pay any tax due and this amount payable will then form the basis for determining the POA required for 2015/16.
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Okay, thank you.
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