confusion regarding payment on account.

nadineyyy

Hey guys,

Let me just start by saying I believe I am a fairly intellegent person but ask me about payments on account and I will literally cry!

here's the situation, I'm currently just self employed and will be until the end of the tax year, as of mid april next year I will be employed full time and self employed too.

By the end of the current tax year I will have made around £11000 and I believe after my tax free and ni free allowance I will have around £750 to pay when it comes to doing my self assesment - does that sound about right?? Also will I be required to make a payment on account?

For the following tax year I will be paid £11700 per annuum and tax will be paid paye, self employment earnings will be £3150 and iv budgeted for the tax to be 20% so £630?? Will a payment on account be required?? Also what happens if my salary increases? Realistically the most I would earn would be about 16k and my self employment pay would stay the same.

Thanks so much.

grey_gym_sock

when you owe under £1000, you don't need to make payments on account, so it sounds like you won't need to.

though i make this year's tax £884.55 ... (11000 - 7605) * .09 + (11000 - 8105) * .2

from next year, yes, it'll be a flat 20% on the self-employed income to pay, as the PAYE income will use the personal allowance. that won't change at higher salary unless your total income reached into the higher rate band, which is a good way off.

next year, you could also opt out of class 2 NI, because your profits will be under £5595 (well, that's this year's limit, not sure about next year's ...).

InsertWittyName

Just to clarify on grey gym socks' point - you don't really 'opt out' of class 2 NI, but you can apply for a certificate of exemption if your earnings are below the threshold here: http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=yKpjabZqCc8&formid=433 (just wanted to ensure you're aware you need to apply and not just 'not bother paying' )

As well as the £1000 lower limit before payments on account are required, there's also the fact that if 80% of income tax is taken at source (i.e. PAYE) then POA are also not required. Full details here: http://www.hmrc.gov.uk/manuals/salfmanual/salf303.htm#IDAW2CME

nadineyyy

Thanks for your help. Yip i sure did make an error on the tax, I meant to write that my earnings for this year were just over 10k not 11km

So as a rule then if it is under £1000 you don't need to make a payment on account? I read online somewhere something about that if 80% of total tax isn't taken at source you need to make a payment on acc...

nadineyyy

Arghhh just can't get my head around that 80% part...

Does that mean that as a self employed person paying nothing via paye I will need to make a payment on account even if I don't owe £1000?

grey_gym_sock

no, you only need to make a payment on account if you both owe £1000 and don't have 80% of tax paid at source.

nadineyyy

Thanks very much for your help guys