Balancing Payment sting

Jackmrhughes

Hello all!

I've just paid my 16/17 tax return, but I was lumped with a fairly large 'Balancing payment' fee and I can't quite understand the purpose of it?

Here's a breakdown of my self assessment statement -

15 Jun 17 - Brought forward from previous statement - £1790.50
31 Jan 18 - Balancing payment due for year 16/17 - £5451.19
31 Jan 18 1st payment on account due for year 17/18 - £4443.29
Amount to pay - £9894.48

Now... I had a bad 15/16 year which is why my payment in June 17 was £1790.50
I had a better year in 16/17 and I'm paying £8886.58 in total for that
But I don't understand why I'm having to pay on top of that a 'balancing payment' of £5451.19?
I had put away 20% and a bit more for the standard 20% tax payment, it feels like I'm being penalised for earning less one year and then earning more the next
The total amount of tax I'm paying in total this year (including the June payment) is £14,337.77, which is around 32% of my earnings, why am I paying 12% more than what I should be for 16/17?

Can anyone explain to me why this happens?

Cheers!
J

Dazed_and_confused

You are paying £4443 as the first payment towards this years (2017:18) liability. The tax year we are about three-quarters of the way through.

There is nothing in your post to suggest you are having to pay £14337 for a single tax year.

If you think this year's bill (2017:18) will be less than 2016:17 then you could make a claim to reduce the amount of the payments on account due on 31 Jan and 31 July this year. But you need to have a good idea of what the correct amounts will be because if you reduce them too much you will be charged interest for late payment.

TheCyclingProgrammer

Your payments on account are based on what you earned in a previous tax year. So if you had a bad 15/16, your payments on account of the 16/17 tax year (the ones you made in Jan and Jul last year) would have been 50% of your 15/16 tax bill each.

As you subsequently earned much more in 16/17 the payments on account were not enough to cover the total tax for that year which is why you need to make a balancing payment now.

chrismac1

You are not alone, many of the posters on here in recent weeks have been just as confused as you. And of course to the numpties at HMRC instead of fixing this, their plan is to require you to file 6 tax returns per year instead of just 1. It's called Making Tax Digital, but 6 returns per year is the crux of it.

Many aspects of the UK tax system are in my view bonkers, the most obvious one being the end date of 5 April. This is because of a decree made in 1582 by Pope Gregory 13, how daft is that? These stupid aspects which have not been changed are why it is the longest tax code in Europe. Self-assessment payments on account are another. They apply if the annual bill is above £1,000. On 31 January 2018 you will not only have to pay all of 2016-17 tax due, but 50% on account of 2017-18.

[Deleted User]

Jackmrhughes wrote: »

I had a better year in 16/17 and I'm paying £8886.58

Can anyone explain to me why this happens?

Cheers!
J

You have confirmed your tax for 2016/17 to be £8886.58.

BUT you only paid 2 lots of £1790.50 towards this.

You owe the balance which should be £5305.58, so we are £160 or so out for some reason.. That is 2016/17 done and dusted.

Now for 2017/18 - each payment on account will be half of the previous year - £4443.29.

[Deleted User]

chrismac1 wrote: »

On 31 January 2018 you will not only have to pay all of 2016-17 tax due, but 50% on account of 2017-18.

You have 'cut and pasted' this a few times (actually quite a few) - it remains incorrect.
You do not have to pay 'all of 2016/17 tax due' on 2017-18. You only have to pay what is owed after taking off payments on account made towards that liability.

Very misleading!

Castle

[Deleted User] wrote:

You have confirmed your tax for 2016/17 to be £8886.58.

BUT you only paid 2 lots of £1790.50 towards this.

You owe the balance which should be £5305.58, so we are £160 or so out for some reason.. That is 2016/17 done and dusted.

Now for 2017/18 - each payment on account will be half of the previous year - £4443.29.

Class 2 NIC of £145.60 probably.