Payment on account worries

stephenong85

Excuse my ignorance here probably a simple answer but just thought i'd put forward my confusion here before I get in touch with an accountant, am a little concerned about my self assessment for
2013 - 2014 and how I'm going to pay it.

In 2012 - 2013, my profit was £19k self employed.
I made a payment of £7,384 in January, which covers total deductions of £3,882.38 and two payment on accounts for Jan 2014 and July 2014 each of £1751.19, i paid the july one early.

I've just today filed 2013 - 2014, in which I had profit of £31k self employed. In my statement it says I owe £7,995.72 total deductions along with two payments of £3,306.86 in Jan and July 2015.

So I owe £11k in January but all I have left is £6k in my tax account due to paying those two payments on account for 2012 - 2013... had i not paid these I'd have the £9k which more than covers my tax deduction for 2013 - 2014.... really confused and a bit concerned I've missed something here with the payments on account.

Thanks in advance if anyone can explain this let me know, I've been through HMRC documentation but can't make any sense. I'll definitely be using an accountant from now on after this!

[Deleted User]

You have to calculate the amount outstanding using the payments on account yourself[1], self assessment does not care about what you have or have not already paid, the figure is free standing, the figure is your total tax liability not the amount you still owe. If your tax liability is £7,995.72 and you have already paid £3,882.38 on account then you need to pay (£7,995.72 - £3,882.38) £4113.34 for the 2013 - 2014 years tax and then whatever your payments on account for the next year are.

[1] Yes this does sound absurd at first, it caught me out and the question comes up every few weeks. After realising the difference between liability and amount owed it's fairly "obvious", but it can be confusing at first glance. You don't need to use an accountant for this.

stephenong85

Thanks for the reply, that makes sense, so I've already covered some of 2013 - 2014 with the payment on account, then with my £6,000 covers the total, which is good to hear. The new payment on accounts are more to cover next years potential income?

I'm still wondering if this will be bad if say I only made £19k in 2014 - 2015 I'd then need to pay £7,000 in the payments on account but my total deductions for 2014 - 2015 would be around £3500 at the end of the year? I assume the overpayment would go toward other years but I'll struggle if my profit decreases as that would then leave me liable for around 40% in deductions?

Does that make sense?

[Deleted User]

stephenong85 wrote: »

Thanks for the reply, that makes sense, so I've already covered some of 2013 - 2014 with the payment on account, then with my £6,000 covers the total, which is good to hear. The new payment on accounts are more to cover next years potential income?

That's correct, the assumption is if you profit £30,000 this year you will probably profit £30,000 next year (or maybe more). Payments on account are calculated every year based on the last years profits, if your profit drops so will your payments on account.

stephenong85 wrote: »

I'm still wondering if this will be bad if say I only made £19k in 2014 - 2015 I'd then need to pay £7,000 in the payments on account but my total deductions for 2014 - 2015 would be around £3500 at the end of the year? I assume the overpayment would go toward other years but I'll struggle if my profit decreases as that would then leave me liable for around 40% in deductions?

If you believe your profit is going to be lower this year you can apply to reduce your payments on account to prevent overpayment. If you do overpay then you'll get a refund after your self assessment is processed. You're not forced to carry your overpayments over to the next tax year, the worst case scenario is your money is tied up with HMRC until the next self assessment is filed.

stephenong85

Ok that's great, and makes sense now.

That last part would be my only concern, my work at the moment is consistent but I'd like to try out some different avenues which will in the short term cut my profit, but in the longer run could become more profitable.

Do you have any idea how late you can request to change a payment on account, would it be possible to do this in January? and also on the other hand if profits were to then be more then would it be possible (and is it worth) increasing my payments on account?

Thanks so much for you help by the way.

[Deleted User]

stephenong85 wrote: »

Do you have any idea how late you can request to change a payment on account, would it be possible to do this in January? and also on the other hand if profits were to then be more then would it be possible (and is it worth) increasing my payments on account?

You can find the specifics of reducing payments on account and when it must be done by here on the HMRC website (start reading from "Claims to reduce or cancel payments on account", all of the following sections are relevant).