Tax Years and CMS

Lets discuss the topic of CMS and the latest available tax year. While this might not be the most thrilling subject, I've noticed numerous online posts expressing confusion about CMS using the 21-22 tax year instead of the 22-23 tax year. Let's clear up this confusion.

But first, here is a related video.   

The CMS regulations mandate the use of your most recent taxable income figure as provided by HMRC. However, it's essential to understand that "latest available" doesn't necessarily mean the most recent tax year. Allow me to explain. For instance, even if today is in June, CMS might not be using your tax year that concluded on the 5th of April. There are a few reasons for this. If you're someone who does self-assessment, your tax return isn't due until January 31st. Even if you submit it earlier, HMRC's processes are geared towards finalizing tax years after the January 31st deadline. Consequently, the tax return might not be accessible before that date. This explains why CMS might use your 21-22 tax year in most instances, especially if you're a self-assessment taxpayer. If you're not involved in self-assessment and are a standard employee with no additional income sources, your tax year ends on April 5th. This means you'd expect to be billed for the 22-23 tax year in 2023. However, it's not this straightforward. The key is the latest available tax year from HMRC, and this isn't necessarily the tax year that just ended. For example, employers have to produce P11D forms, which contribute to your taxable income. However, their deadline isn't April 5th; it's typically later in June or possibly July. Consequently, there's a window of several months where your latest available tax year isn't the one that just ended. So, if your annual review is in June, you might be billed based on the 21-22 tax year. If we're in August, then the billing should shift to the 22-23 tax year. This shift in billing depends on whether you're a regular taxpayer or a self-assessment taxpayer. Keep in mind that CMS uses the latest available tax year from HMRC. This doesn't necessarily coincide with your most recent tax return submission, as HMRC's processes could still be ongoing. Unfortunately, there's no way to correct this on your own. Sending in your most recent tax return won't help, and it might even work against you due to tax thresholds. So, you'll need to accept the situation and remember that in a year's time, CMS will base their calculations on the next tax year. To clarify a couple of points, the tax year spans from April 6th to April 5th. Additionally, CMS relies on tax years because they provide a consistent view of income, avoiding wild fluctuations. Whether you're a seasonal worker or not, CMS aims to maintain income consistency for both parents involved in payments. To sum up, the most recent tax year used by CMS is the one supplied by HMRC, not necessarily the most recent one you've filed a tax return for. If you've filed your tax return early, hoping to skip a year, that strategy won't be effective. Conversely, if circumstances are the other way around, you won't pay a higher amount immediately, giving you time to save. I hope this explanation clarifies things. Have a pleasant evening and take care. Goodbye!