Payment on account-what's that all about ?

hubb

I filed my tax return and this time I have been charged a pament on account on top of my 2011-12 earnings. Why are they taking payment in advance ? an employee doesn't have tax in advance taken from their wages so why us self employed ?

chrismac1

Ahem. An employee paid all of his or her 2011-12 tax between April 2011 and March 2012, so that's up to 21 months ago.

The payment on account is 50% of the estimated tax bill for 2012-13. In the absence of a better estimate which you are free to enter, this defaults to the same bill as 2011-12.

I always calculate clients' 2012-13 estimates, and then put in half of this for the payment on account. This makes sense even if 2012-13 is going to be much higher, as interest will be charged and no-one likes having to pay a massive lump of tax in one go if this was avoidable.

gkerr4

well explained above - you can reduce it, there is a section on the left hand side of the HMRC portal - "amend account payment" or some such.

grey_gym_sock

chrismac1 wrote: »

I always calculate clients' 2012-13 estimates, and then put in half of this for the payment on account. This makes sense even if 2012-13 is going to be much higher, as interest will be charged and no-one likes having to pay a massive lump of tax in one go if this was avoidable.

um ... do you mean you voluntarily increase the payments on account if more tax will be due? ... interest is only charged if you reduce the payments and don't pay enough.

hubb

It seems to me a sly way for the government getting money up front when it could be in a savings account earning us interest.

nomunnofun

hubb wrote: »

It seems to me a sly way for the government getting money up front when it could be in a savings account earning us interest.

But it is not money 'up front'. The payment on account is for 2012/13 tax year and is payable in January and July 2013. By January, those on PAYE will have paid 10/12 of their PAYE tax by then when you are required to pay half. Your second half will be paid four months after PAYE employees have completed the tax year.

This is 'catch up' time. You need to remember that, for those with a March 2012 year end, for example, profits earned as far back as April 2011 will not incur tax until January 2013.

hubb

Ok, I see now. It makes sense I suppose. Thank God I have been putting money aside. Must be a shock when some folk aren't expecting it.

hubb

Just had a think and I can see that next year I won't be paying as much because of the payment on account this year BUT I will then have to make a payment on account this time next year which will seem the same As this year. Every year I wil have to do this so I won't feel any benefit paying upfront.

jennifernil

I did try to warn you! Post #23.

https://forums.moneysavingexpert.com/discussion/4349401

And you are not paying "up front", as nomumnofun already explained.