Payment on account - having to pay 2 x value of tax bill

monkeybrains

Hi.

My tax bill for the year ending 2014 is £6117.52 inc Nat 4 contributions.

However, I have also got to pay the same again for the year ending 2015 on account, all by Jan next year!

Does this seem right?

I know there will be a valid reason and am awaiting hearing back from my accountant but just wondering if a 3rd party could also clarify.

==
Tax year ending 05 Apr 2015 First payment on account 31 Jan 2015 3058.76

Tax year ending 05 Apr 2015 Second payment on account 31 Jul 2015 3058.77

Tax year ending 05 Apr 2014 Balancing payment 31 Jan 2015 6117.53

Total 12235.06

westy22

That's not right.

Your tax bill for YE 5 Apr 2014 is £6,117.52. This is to be paid as £3,058.76 on 31 Jan 15 and £3,058.76 on 31 Jul 15. Your two Payments on Account (POA) will have paid the tax bill exactly so there will be no Balancing Payment due.

There is only a Balancing Payment due if the tax due exceeds what you have paid on account. What you may have to pay as a Balancing Payment on 31 Jan 15 is any tax you still owe for the YE 5 Apr 2013.

monkeybrains

Thanks West.

So in essence I only have to pay £3058.76 total in January and £3058.77 in July?

I still find it strange that the total at the bottom states £12235.06 due.

"GBP12235.06 will shortly become due for payment. A breakdown of this amount is outlined in the table below. Follow the appropriate link within the 'Description' column to find out more about each payment."

Dr_Teeth

westy22 wrote: »

Your tax bill for YE 5 Apr 2014 is £6,117.52. This is to be paid as £3,058.76 on 31 Jan 15 and £3,058.76 on 31 Jul 15.

No.

Tax for year ended 5 April 2014 must have been paid in full by 31 January 2015.

Monkeybrains: Is this your first year completing a tax return?

westy22

Monkeybrains, Dr Teeth is 100% correct - please disregard my post #2; I must have had a total brain-f**t! Many apologies for duff information.

You will pay £6,117.52 tax owed for 13/14 plus £3,058.76 on account for 14/15 on 31 Jan 15. The remaining £3,058.76 on account will be paid on 31 Jul 15.

purdyoaten

monkeybrains wrote: »

Hi.

My tax bill for the year ending 2014 is £6117.52 inc Nat 4 contributions.

However, I have also got to pay the same again for the year ending 2015 on account, all by Jan next year!

Does this seem right?

I know there will be a valid reason and am awaiting hearing back from my accountant but just wondering if a 3rd party could also clarify.

==
Tax year ending 05 Apr 2015 First payment on account 31 Jan 2015 3058.76

Tax year ending 05 Apr 2015 Second payment on account 31 Jul 2015 3058.77

Tax year ending 05 Apr 2014 Balancing payment 31 Jan 2015 6117.53

Total 12235.06

The tax due for 2013/14 is £6117.53 less any payments on account made in January and July 2014. If you made none the whole amount is due as stated.

When did you start self-employment?

zygurat789

You're self employed so you have paid either no tax during the year or have made payments on account on 31 Jan 2014 and 31 July 2014 and a balancing payment which will be all your tax if you have made no payments on account on 31 Jan 2015.
If you were PAYE when would you have paid this tax? By 31 March 2014.
You definitely have to make payments on account for the year to 5 April 2015, these are due on 31 Jan 2015 and 31 Jul 2015. How much, who knows your accounts haven't even been started yet. The only amount HMRC can use is last years figures. If you think that this years profit is less than last years, and hence tax less then you can request a reduction of the payments on account. If you ask for too big a reduction then you will have to pay interest on the underpaid amount.
Yes it is a lot of tax to pay in a short period because you probably haven't paid any tax in jan & jul 2014, but you have earned the money and once you are up to date it will be easier.

monkeybrains

Thanks for the replies - I'll have a good read through it all tomorrow.

monkeybrains

Dr_Teeth wrote: »

No.
Monkeybrains: Is this your first year completing a tax return?

I have done them myself and had no problems as was putting pretty much any money I made back into the business. This last year I started paying myself and also got an accountant to do the account/submission of the return.

westy22 wrote:

You will pay £6,117.52 tax owed for 13/14 plus £3,058.76 on account for 14/15 on 31 Jan 15. The remaining £3,058.76 on account will be paid on 31 Jul 15.

So on January 31st I have to pay £9,176.28? What is this £3,058.76 on account actually for along with the £3,058.76 on 31st July? Can't understand why I have to pay more than the £6,117.52

grey_gym_sock

the extra £3k (or so) in january 2015 plus the £3k in july 2015 are both advance payments towards your tax liability for the current tax year (2014-15). they are calculated on the assumption that your tax position will be the same in 2014-15 as it was in 2013-14.

when we get to january 2016, when you have to pay the final tax due for 2014-15, the £6k already paid (in advance payments) is deducted from that bill. so, for instance, if you need to pay £7k total for 2014-15 (supposing your income has risen a bit), then you'd only have £1k extra to pay in january 2016 in respect of 2014-15 (plus an advance payment for 2015-16, which would be £3.5k - because that's half of the supposed £7k liability for 2014-15 - making a total of £4.5k payable in january 2016).

if your liability for 2014-15 will actually be lower than for 2013-14 - i.e. the £6k advance payments would mean that you'd have over-paid - then you can apply to reduce these payments on account. though note that you will be charged interest if you apply to reduce the payments and end up underpaying (by more than a trivial amount).

00ec25

monkeybrains wrote: »

So on January 31st I have to pay £9,176.28? What is this £3,058.76 on account actually for along with the £3,058.76 on 31st July? Can't understand why I have to pay more than the £6,117.52

you are presumably familiar with Pay As You Earn whereby employees have tax deducted each time they get paid

for the self employed given that the ultimate deadline for tax returns is 10 months after the end of the tax year (ie the following Jan) were it not for the payment on account process you would (potentially) not pay any tax at all until that time making the difference between employed and self employed very unfair

payment on account works on the principle that HMRC assume your business level is relatively stable so what you earned as profits last year will more of less be the same next year. So last year's accounts and taxable profit are used as an estimate of next year's tax bill and you have to pay half of next year by Jan and the balance by July so that you have paid some tax during the tax year.

So in 14/15 you have made a payment on Jan 15 towards half of 14/15's expected liability and by July 15 you have paid the rest , so instead of being potentially 10 months after the end of the tax year it is only 2 months "late" and is therefore slightly more fair compared to PAYE who have no ability to for example save their tax money, earn interest on that and only at a later date pay a lump sum to HMRC whilst pocketing the interest they earned in the meantime.