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

monkeybrains

Thank you all. I have reread the thread and all is clear now.

Thank you again.

TheCyclingProgrammer

grey_gym_sock wrote: »

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.

Strictly speaking, payments on account aren't "advance payments". They are estimates based on your previous years earnings, but the January payment would be for the first 6 months of that tax year (so the previous April to September) - almost 4 months in arrears really.

The July payment would be for the remainder of the tax year, October to 5 April, 3 months in arrears). Then you submit your calculation and make any balancing payment (or are refunded) the following January.

It can feel very much like paying twice when you declare your first taxable income (usually after your first year although not always as in your case) but thats only because you're paying the first year late, not the rest early. You only have this double whammy once. Seems to take a lot of people by surprise though.

You can mitigate this if you know about it in advance, and put aside an approximate amount of money each month from the first month you start trading to cover your tax bill. If you do that, then by the first January that you are due to make a payment, you should have money set aside for the entire first year you were trading plus at least 8 months of the current tax year.

Edit: just saw that 00ec25 pretty much said the same thing.

sheramber

monkeybrains wrote: »

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.

You are due to pay tax on all your profit regardless of whether you take a wage or put the money back into the business.

If your pofit of income over expenditure is £5000 then you pay tax on £5000.

You can then take some or all of the balance as your wages or you can pay some or all of the balance into the business.

purdyoaten

sheramber wrote: »

You are due to pay tax on all your profit regardless of whether you take a wage or put the money back into the business.

If your pofit of income over expenditure is £5000 then you pay tax on £5000.

You can then take some or all of the balance as your wages or you can pay some or all of the balance into the business.

1) If you make £5000 profit, you pay no tax unless you have other taxable income.

2) You can take as much as you want out of the business - it is totally irrelevant for tax.

zygurat789

purdyoaten wrote: »

1) If you make £5000 profit, you pay no tax unless you have other taxable income.

2) You can take as much as you want out of the business - it is totally irrelevant for tax.

But not the bank manager:rotfl: