Here at Hnry, we are constantly looking to improve the algorithm that determines the appropriate tax rate for your income received via Hnry. As part of this ongoing effort we have made changes for how we account for current and/or prior sources of income that were earned outside of Hnry (but within the same financial year).
You may see an increase in the tax rate used when processing your payments through Hnry for the rest of this financial year (until March 31st 2020). If so, then it is likely the result of one of the following;
1. You requested Hnry to Adjust your Tax Rate
If you asked for your tax rate to be inflated when you completed the Mid Year Transition to Hnry upon sign up, then your increased tax rate will be due to the system still trying to catch up on the tax owing for your self-employed income earned prior to joining Hnry.
If you are not earning your self-employed income at either a consistent rate or frequency, then the system will keep inflating your tax rate (up to a maximum of 40%) in line with your remaining forecasted earnings to try and reduce any shortfall in tax from your prior earnings, in addition to meeting your current tax obligations for the income through Hnry. We do this to try and ensure that you do not end up with a tax bill at the end of the financial year (or at the very least, reduce any amount you may owe).
2. Multiple Income Sources
When setting your tax rate, we now take into account all the following factors for your income through Hnry:
- Other income earned outside of Hnry (e.g. PAYE/Salary)
- Self-employed income through Hnry
- The frequency of your earnings through Hnry
- The time remaining in the financial year
In order for our system to work as accurately as possible, we need all other income sources to be declared as accurately as possible and updated regularly (see Why we need to know about your other sources of income). Unfortunately, a large number of our customers have not been accurately maintaining this information, therefore we have had to make changes in the way we factor in any additional income made as there is a large margin for error and risk that the tax will not be accurately calculated.
If you have other sources of income, particularly a salaried/PAYE job, in addition to your self-employed income, then your self-employed income through Hnry will now be taxed at a secondary tax rate rather than the blended tax rate we have used previously. This is to help provide certainty to customers that they will have no tax owing at the end of the financial year.
You may notice that your tax rate has increased to a rate higher than 33%. If this is the case, then this is due to the system trying to catch up on a potential shortfall in tax paid against your previous self-employed income through Hnry. This inflation will only be in place for the remainder of this financial year, as of 1st April 2020, your tax rate for your self-employed earnings will reduce back to either 33% or less.
The reason for inflating the tax rates now is that we want to protect our customers and ensure that we have done everything possible to avoid you owing any tax. However, if for any reason you do not wish for us to inflate your tax rate for the remainder of the financial year, then please get in touch with the team as soon as possible via email@example.com so we can manually set your tax rate to an agreed amount. If you choose to set your rate then it may result in tax owing when we file your Income Tax return for you, however if this is the case then we can set up an agreed allocation with you to pay this amount off over the subsequent year.
NB: please be aware that if you fix your tax rate at a lower amount and the resulting bill is over $2,500, then this will result in you needing to be on Provisional Tax.
As always, we are here to help so please feel free to get in touch with the team if you have any questions