HMRC Tax Rebates for Self Employed

[missyp]

I don't post on here very often and to be honest reading past posts, I am more confused than ever!

Can someone please give me a definitive answer.

I have read on here that some self employed people have had to hand over the whole of their tax rebates as it is classed as a windfall but others have kept theirs. Why is that?

We are just in the process of having our second review.

I am in paid full time employment, my husband during the past 12 months went from full time employment earning approx £1200 per month to just £300 as self employed.

Because he has not reached the personal allowance limit he is due a tax rebate.

I have been having to supplement my husband's IVA for the past 10 months because his earnings are so low. My income has only increased because of the new tax codes this April where personal allowances have now increased.

If he has no work I pay for everything. Life has not been much fun this past year.

Things were so bad at the beginning of the year he had to claim Jobseekers for two months. He only signed off because he did a bit of work for someone and it meant he would lose all of his benefit.

To be honest I cannot envisage the next 12 months being any better. There is no full time work out there for skilled labour, self employed work is almost non existent. It's not getting easier, its get harder as each month goes by.

Therefore I want to know if we will have to pay the tax rebate into his IVA and why, when it is money that is owed to him because his earnings were so low.

Thanks in advance.

[Michael Peoples]

I assume your husband is CIS registered and he is only getting back the 205 deductions. This money should be his to use for accountancy bills, repairs & renewals, annual insurances etc. However some IP firms have differing views but in my opinion the rebate is not a windfall but working capital.

[missyp]

Hi Michael, thank you for your reply. Yes it is from CIS Deductions. I am waiting to hear from our IP at the moment as we are currently going through our annual review. The have said that they need to look into his accounts and his earnings in more detail before they make a decision. Is that normal?

[Michael Peoples]

It may depend on how much they estimated he would be earning as this is what the IVA payments would be based on. If he has earned more than projected they may seek to take the rebate but if he has earned less then the rebate would surely be his. Bear in mind that turnover is not profit and ensure the IP uses his net profit figure and not his gross income.

[missyp]

Thanks for your advice. Fortunately I am a part-qualified accountant so did the return myself and look after the accounts, the profit figure is very low.

[Michael Peoples]

You should be fine then and hopefully the IP refunds the money. HMRC will usually offer any rebate to the Supervisor first but he/she can refuse it and have it paid to the client.

[MelanieGiles]

I don't think that there are differing views across firms Michael, merely differing ways of presenting the figures. I think you do yours on the basis of gross income, and therefore the rebate would be rightly due, but this could cause cashflow difficulties until the rebate is received. We prefer to work out the DI on the net figures from the outset, which means that our clients benefit from the cashflow advantage in the months prior to the refund, but then the refund is due to the IVA. The net result being the same whichever way you look at it.

[Michael Peoples]

I take your point that the net result would be the same and you are right we use the gross figure to calculate the profit and loss. Normally we find that the rebate is used to pay the accountancy bill, renew insurance policies, buy or fix tools etc which are things allowed for on the profit and loss. To take the rebate in such circumstances would be just wrong.

[MelanieGiles]

It definately would if the trading projections have been based on gross not net monies.

[Jules79]

Hi, We are currently very confused about this very same subject.

My husband and I have only recently entered in to an IVA (March 15 2012) We have read through all of our paperwork and were happy with our agreement. My husband is a self employed sub contractor who is on the CIS scheme. Every year since he started his business (12 years) any tax return payments he has had have been used to cover the cost's of running his van, repairs, tools, clothing and also coverage for time off during the companies 'close down period' over the Two week Christmas break and bank holidays throughout the year. After reading through a letter which had the chairman's report attached along with a form RXI(Land registry)there was a section which said 'During each financial year that falls within the arrangement, the debtors partner must pay 50% of any net profits received after tax and drawings. I called and spoke to an adviser to ask if this was in reference to my husbands tax return? I was told that they would require 50% of his tax return to pay to the creditors. During the whole IVA process none of the advisers nor supervisors I have spoken to ever mentioned his tax rebate to us? We filled in the income and expenditure forms along with the projection of his income (not taking into account his tax rebate) When it came to the renewal time we sent his tax return off via our accountant. The rebate was paid directly into our joint account. As I assumed that this would be classed as part of his income and they had said they wanted 50% I called to tell them that we had received the rebate and wanted to make arrangements to pay the 50%.

I was informed at that time that they require the full amount off us? That it is in fact classed as a windfall? I've called them on several occasions for a full explanation and keep being put on hold whist 'they speak to their senior' I have explained that we have always expected to receive a rebate of some kind over the last 12 years and that this is used for the reasons I've stated above and that my husband cannot physically work 52/3 weeks of the year to cover our outgoings therefore in our opinion it in not a windfall but part of his income. They told me that I need to get proof?? And that this should have already been considered in the initial projection which I know for definite that its not been included.

Can you please help me on what I need to be asking or providing them with? We simply cannot afford to not have wages for 4 weeks of the year.

Many Thanks
Julie

[Michael Peoples]

You need to get this clarified with your IP and not with a caseworker. You need to find out if your proposal was based on cashflows or a projected profit and loss. Did your IP use 'drawings' for the income and expenditure because the 50% mod sounds really odd? Drawings have no basis in an IVA as they do not reflect actual profits given that you could 'draw' more or less than the business makes and either incur credit or not pay enough to creditors.

We take pre IVA rebates as windfalls although we will allow accountants bills and the like to be paid but anything post IVA is accounted for in the projected profit and loss account and is not for creditors to receive.

[Jules79]

Thank you for your prompt reply.

I have asked to speak with our IP and have been told that I have to deal with the customer service's team? I don't have a direct number nor email address for our IP just his name and after asking to speak with him I was told I have to go through the advisers?

We have the receipt for the accountant however the monies we will have to payout for the other things will be difficult as they are usually sorted over the coming months once we are in receipt of the tax rebate as we cannot afford to pay for these things out of our monthly income? How can we provide proof if we haven't yet been able to 'spend' the money on those items? Its all very confusing so please bare with me.


Also how does this leave us for future

[Niobe]

Try contacting your IP directly - you can find his email address via this link:

http://www.insolvencydirect.bis.gov.uk/fip1/

[Michael Peoples]

You have every right to speak to your IP as ultimately you pay their wages. You could ask for a face to face meeting with them and everything could probably be resolved much easier in this way.

You really need the proposal explained to you and how your IP arrived at the figures. the modification states that 50% of any net profits received after tax and drawings is to be paid to the IVA but this makes no sense at all. As I said before you drawings are nothing to do with profits and this mod means that you could draw the whole lot out and pay nothing extra, or if you were prudent you could draw a small amount and leave the business in a healthy state but get hammered for money in the account.

Your IVA has only been approved and you are totally confused which does not bode well for the next five or six years. Demand to speak to the IP and preferably do so face to face.

[Jules79]

Thank you, as you have pointed out we are only a few months in to a 5-6 year agreement and yet we're completely bamboozled very concerning indeed. All was clear up until the whole tax rebate issue arose? I cannot understand why they failed to address this at any point. As we have included the business debt (Overdraft, loan and credit card) into our IVA along side personal debt would this make any difference? The business is still running as he is a sole trader and the debt he accrued has been from the economic down turn and rising costs with no actual raise in his rates due to the risk of losing out for work as there are so many other people queuing up to have his job.

I will endeavour to demand contact with our IP, being told one thing by one adviser and another thing by another hasn't helped and she was adamant when I called yesterday that I have to deal with them?! Now I know I can speak with him directly I shall push harder.

Thank you for your time