"Payment on account" ?

jimpix12

Hi all.

I've got my accounts back from my accountant and I'm confused. A bit late to ring him now so hopefully someone can shed some light on this.

I can see the amount due on Jan 31st. Let's just say to keep things simple, it's £2000. However, my accountant then goes on to say that the revenue will require a payment on account (?) of £1000 on this date.

These are for the 07/08 period. I'm confused - does that mean I will have to pay £3000 by Jan 09?! Surely that can't be right. My total tax liability is only £2000 anyway!

I remember making a payment on account for 06/07 as well, isn't that offset against my 07/08 accounts? I don't see it taken off when I review the accounts.

Sorry, I'm just confused by all of this, and very worried to say the least. I thought I got longer to pay as well. Help!

Mikeyorks

spunko2010 wrote: »

My total tax liability is only £2000 anyway!

If your total liability for 07-08 is £2000 ...... you should already have made payments on account of this in Jan 08 and July 08? You then (by 31st Jan 09) have to pay any balance of 07-08 plus 50% (the payment on account) towards 08-09.

If the payment on account is definitely £1000 ...... then that suggests your total liability for 07-08 is £2000. But you should, as above, have already reduced that by payments on account in Jan and July 08 .... so, check what you have paid already. And that should come off the £2000 (possibly leaving a balancing payment) ...... but you will have the £1000 to pay on top of any balancing payment.

You can apply to reduce the £1000 payment on account if your profits for 08-09 look to be heading lower than 07-08. But you don't do that lightly as you will be charged interest right back to Jan 09 / July 09 .... if the figures to Jan 10 show you should have paid up to the £1000. Something to discuss with your Acct if you consider it applies?

jimpix12

Aha, that makes sense! Thank you.

My only other question is, if I pay the 50% of 07/08 now (or before 31st Jan 09), when is the rest due by? Jul 31st 09?

I don't understand why I should have made payments for 07/08 in January 2008 - when accounts aren't processed until April 2008 anyway though?

Treading_Water

You are not paying 50% of 07-08, but a payment on account for 08-09 based on the liability for 07-08. and yes the 2nd installment will be due on 31 July 09.

Mikeyorks

spunko2010 wrote: »

My only other question is, if I pay the 50% of 07/08 now (or before 31st Jan 09), when is the rest due by? Jul 31st 09?

I don't understand why I should have made payments for 07/08 in January 2008 - when accounts aren't processed until April 2008 anyway though?

Your payment due on 31st Jan 09 is made up of 2 parts. The first part is a 'balancing payment'. This is what you owe for 07-08 ...... but having taken off the 2 payments on account you should have made 31st Jan 08 and 31st July 08.

The second part ..... is a payment on account of 08-09 .... and is usually 50% of the 07-08 liability.

You shouldn't be paying it now ..... as it's not due until 31st Jan .... so a few days in advance of that is the way to go? And you have to make the payments on account ...... simply because those are the rules! Bit of direct HMRC info here :-

http://www.hmrc.gov.uk/sa/understand-your-state.htm

Penny_Rich

You may not have already made payments on account for 2007/08, it depends on what your final agreed liability was for 2006/07. Your payments on account are always determined by your previous years final liability, and not everyone has to make POA's. Always a good idea to double check with your accountant though. Do you remember making a payment to HMRC on or shortly before 31 July this year, as if so, this would probably have been your second POA for 2007/08.