When the sun is shining it’s tempting to make the most of the hot weather and put things on hold until the next rainy day. HMRC, however, is immune to our changeable weather and their deadlines can’t be ignored or you risk hefty penalties.
Are you registered under the self-assessment tax system?
Then the next important deadline you should be aware of is the 31st of July. This is for the second instalment of the Payments on Account for the tax year 6 April 2013 – 5 April 2014.
What are Payments on Account?
‘Payments on account’ are advance payments towards your self-assessment tax bill and are paid in instalments, twice a year, helping you to spread the final cost.
Who is expected to complete a Payment on Account?
When you register with the HMRC’s self-assessment tax system you are more likely to have to make payments on account. The payments on account are based on the previous year’s earnings if your tax bill for that year was higher than £1,000.
It’s worth noting a payment isn’t expected if your bill was less than £1,000* or unless more than 80% of it has already been deducted at source.
Anyone paying Income Tax could find themselves in the net, it’s not just the self-employed and businesses. If you’re unsure of your tax position it’s worth consulting a tax expert to help you fully understand your unique tax circumstances.
*After PAYE or other deductions at source.
How is each Payment on Account calculated?
HMRC will be expecting this year’s payment to be similar to last year’s. The reason for this is that they presume your income will be roughly the same and that you pay the same amount of tax each year.
Realistically, the individuals and the small to medium size businesses I work with have fluctuating income and profits each year reflecting the ebb and flow of business and income. This is where my expertise in tax planning safely guides my clients.
Can the Payment on Account be reduced if income is down?
At times, clients come to me asking if they can reduce their payments on account until their financial position is more stable.
The answer is yes, but this option must be managed carefully and you must seek expert advice first. If a payment is reduced by too much there’s a risk of interest charges and late payment fines.
When is the time right to reduce a Payment on Account?
Using sophisticated Cloud accountancy software allows me to assess accurately the individual tax circumstances and financial position of every client. The result is I can advise on the right course of action to take today to safeguard the financial future.
If income is down I can effectively and safely reduce payments on account until my clients are in safer financial waters.
Put simply, there is no need to pay more than you have to.
The sooner you call the better if you are considering reducing your payment on account or looking for clarity about your unique tax circumstances. The 31st of July is almost upon us.
Contact us on 0141 290 0262 or email email@example.com
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You can read more information about Payments on Account direct from the HMRC
Until next time