If you are anticipating the July payment on account don’t worry there is still time to review this.
If your profits reduced in 22/23, then you should be able to reduce your July payment on account that is due 31 July accordingly.
This must only be adjusted if your tax liability is LESS than your previous year (assuming this is not your first year in self-assessment).
Forward planning and being organised really does help, and if the profit from your sole trade business is less than the previous tax year then you may want to get organised and claim back any tax that is owed to you TODAY!!.
What is a Payment on account?
When you complete a tax return you are required to pay income tax on the profits arising, in addition to ‘Payments on account’ (POA).
See below for an example of how the POA’s are calculated.
2021/22tax year
1. Tax return is completed and the tax liability totals £3000
2. This tax liability of £3000 is due for payment by 31 January 2023
3. In addition to this (and any balancing payment for 2021/22) the following POAs are due for payment against the next years liability (calculated as £3000 @ 50%)
£1500 (50% ) due 31 January 2023
£1500 (50% ) due 31 July 2023
The main purpose of the POA is to ensure that businesses don’t get into debt with HMRC.
These payments on account are a collection of payments that go towards the next year’s (2022/23) income tax and National Insurance Contributions (Class 4 NIC). So the POAs are scheduled on two dates, the first being the 31 January that precedes the tax year and then the 31 July after that.
The good news if that is your tax liability is less than the previous year then you will be able to reduce the July payment on account or better still may not need to pay the second POA at all. I guess the bad news to that scenario is if your tax liability is less it means your profits were less but this is something your accountant can review and advise on.
But what if the POAs don’t cover the actual liability that becomes due on the 2022/23 tax liability 31 January 2024?
Lets fast forward and imagine that you are now completing 22/23 tax return.
2022/23 tax year
1. Tax return is completed by the 31 January 2024 and the tax liability totals £3900
2. This tax liability of £3900 is due for payment by 31 January 2024
3. You have already paid 2 x £1500 via the POA’s 31 January 2023 and 31 July 2023
4. You will then need to make a balancing payment of £900 by January 2024 (£3900-£1500-£1500)
5. Plus a POA of £1,950 (£3900 @50%) by 31 January 2024 which is the first POA towards the 2023/24 tax year.. and so the cycle continues.
You are able to reduce the payments on account and apply for a repayment of tax that is due back to you. You can do this by simply filling in an SA303 form or by selecting ‘Reduce my payments on account’ within your online tax account. More information can be found at Gov.uk.
Do be careful as if you reduce the POA too much in error you will be charged interest and penalties for this error.
Updated
GET IN TOUCH FOR A REVIEW OF YOUR TAX POSITION AND TO IDENTIFY THE TAX SAVINGS THAT YOU CAN MAKE TODAY
There are some exceptions to the payments on account rules. If your tax bill is less than £1,000 you won’t have to pay any payments on account, and if you have already paid 80% of the income tax that is becoming due.
My best piece of advice to all my clients is to plan and manage your POA’s is as follows:
– Submit your tax return information as early as possible to your accountant.
– Ensure that you have a contingency plan in place and have set money aside to be able to meet all payment deadlines. This is important to avoid any late payment charges.
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last updated 17/07/2023