As you know, the PAYE (pay as you earn) system is a way of paying income tax and national insurance contributions. The amount you pay is determined by a code allocated to you by HMRC. Your tax and NI are then deducted from your wages at source.
But what if you’re self-employed or work on a freelance basis?
In this case, you’re not paid through PAYE, so it’s up to you to take responsibility for paying the right amount of tax. The best way to do that is to maintain accurate records of your earnings and outgoings. Then you must complete a yearly self-assessment tax return form.
Handling your tax affairs can quickly become time-consuming, in which case it may be most efficient to hire a bookkeeper and accountant.
But let’s get back to the matter in hand – PAYE.
What is a Personal Tax Account (PTA)?
Your PTA is an online resource you can obtain by registering on the Government Gateway website. You can also give your account access to your agent if you have one to take care of your tax affairs on your behalf.
Your PTA allows you to view and manage your PAYE and personal tax affairs in one secure place. There are several services available, including:
- The ability to review your Income Tax estimate and tax code
- Completing, sending and viewing your personal tax return
- Claiming a tax refund
- Tracking any tax forms submitted online
- Informing HMRC about a change of address
- Updating any work benefits, such as company car details
With access to all that information, what could go wrong?
Does HMRC make mistakes?
On the face of it, PAYE sounds simple, but HMRC has been known to make mistakes (either by human error or software glitch) and therefore may not always be right when they say you owe them money. That’s why we recommend you keep an eye on your PAYE account.
In the summer of 2020, an HMRC error came to light when it was revealed that Employment Allowances hadn’t been allocated to some employers, which just goes to show they are not infallible.
If the HMRC do make a mistake with your PAYE, you can challenge it through its stipulated formal process. Although transparent and receptive, it is also unsurprisingly slow.
Don’t assume HMRC are right
The moral of this article is do not assume that HMRC is always correct in their claims. If you are notified of an underpayment of tax that you feel is incorrect, flag it up to them. There’s a chance that you are right, and they are wrong.
Keeping accurate records and knowing what you need to pay and what you have paid is vital. It’s up to you whether you do this yourself or have an agent do it for you. But if you notice any significant changes in your income (up or down), make sure you raise a query one way or another.
If you are a small or medium-sized business that needs a bespoke bookkeeping service, call the team at Time Wise VA on 0161 211 9837.