Ending self employment due to travelling, how do I avoid paying tax up front?

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Hi,

I am self employed and have been for a couple years. I just filed my tax return for 15-16, this was my first year of being fully self employed. I noticed I not only have to pay the tax owed for that year, but also a payment towards the tax year 16-17, with the rest due at the end of July. I guess this is normal, and seems fine to me.

However, at the end of August this year, I will be going travelling for at least a year with my wife, where I expect to earn basically no income and will be ending my self employed business before I go. This leaves only the months April 2017 - August 2017 where I will be earning, which will almost certainly come underneath the taxable threshold, meaning I won't need to pay any tax for the 17-18 year.

However when I submit my tax return for 16-17, won't it try and make me pay towards an similar estimated amount for 17-18? Is there a way to say my tax for 17-18 will be basically 0 and not have to pay it up front? Do I need to prove this in some way?

Thanks for any help or advice!

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  • Brighty
    Brighty Posts: 755 Forumite
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    There's an option in the online SA to reduce your 'payment on account', so just reduce it to zero i suppose

    Brighty
  • uknick
    uknick Posts: 1,626 Forumite
    First Anniversary Name Dropper First Post
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    With a comment as to why you reduced it to zero.
  • TheCyclingProgrammer
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    However when I submit my tax return for 16-17, won't it try and make me pay towards an similar estimated amount for 17-18? Is there a way to say my tax for 17-18 will be basically 0 and not have to pay it up front? Do I need to prove this in some way?

    Yes, there is.

    Firstly, you're not paying up front. Payments on account are not advance payments, they are payments in arrears (you actually get to pay your first tax bill as self employed 9 months after the end of the tax year you started which is quite generous!).

    They are only "in advance" in so far as you pay before you submit the tax return for that year, but you're still given longer to pay than people on PAYE who pay tax as they earn it, not 9 months into the tax year and 3 months after it.

    Once you file your 16/17 return after April, you will possibly have a balancing payment due next January. This will be the difference between what you've paid on account this month and in July and your actual tax bill. If you've earned more than the 15/16 year then your tax will be higher than estimated so you will pay the difference owed. If you've earned less you will be due a refund.

    Your payments on account for 17/18 will be based on your 16/17 earnings, as you say. If you're certain this is below the personal tax threshold then you can reduce the payments to zero. Otherwise, all you need to do is wait until August so you have a clear picture of how much you've earned in the period from April-Aug 2017.

    If its above the threshold, calculate the tax that will be due on this, divide it by 2 and then log into your online tax account and submit the form to reduce your payments on account to what you have calculated (selecting "I will be earning less than expected" as the reason).
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