Claiming to reduce 2019-20 payments on account

crazy_kitten

I'm trying to file my first ever tax return and I've got stuck at this.

The problem is while my first year working as a freelance graphic designer (whilst at the same time working in full-time employment as an employee at a design agency) meant my income was quite high for that year the second year, however, was far less successful with only a couple of small jobs throughout the whole year.

Therefore, as I try to file my tax return for 2018-19 I want to claim reduce my 2019-20 payments on account as I've barely made any money this year with my freelance work.

I've almost finished filing my return and have selected 'yes' to the question 'Are you claiming to reduce your 2019-20 payments on account?'

But then it says 'enter the reduced amount of your first payment...'

It tells me I can calculate this amount estimating the difference between the Income Tax you expect to pay in 2019 to 2020 and your Income Tax due as shown on this Tax Return.

How do I calculate the Income Tax I expect to pay in 2019-20?

All I know is my net income so far for the year...

Any help would be greatly appreciated. I kind of wish I never even started filing a tax return and just kept quiet about the extra money I earn on the side. Filing this tax return is so difficult, I really feel out of my depth with it all

00ec25

crazy_kitten wrote: »

How do I calculate the Income Tax I expect to pay in 2019-20?

All I know is my net income so far for the year...

as it says, you are expected to be able to do a projection of the net profit for your self employed business for the 19/20 tax year on the basis it has less than 3 months to go.

How much more work are you going to be doing between now and then? Surely you know what your profit margin is on the work you do, so you should be able to estimate from that

The sensible option is to always overestimate your profit so you do not end up having reduced the POA too far and thus underpaid tax as that will land you with interest (and penalties)

crazy_kitten wrote: »

Any help would be greatly appreciated. I kind of wish I never even started filing a tax return and just kept quiet about the extra money I earn on the side. Filing this tax return is so difficult, I really feel out of my depth with it all

then pay someone else to do it for you

crazy_kitten

I can estimate my net profit for the year but it's not asking for that it's asking me to enter my first payment on account for 2019-20 by estimating 'the difference between the Income Tax you expect to pay in 2019 to 2020 and your Income Tax due as shown on this Tax Return'.

How do I work out the Income Tax I would be expected to pay in 2019-20?

TheCyclingProgrammer

It’s simple - you already know how much you’ve made so far in the 19/20 tax year and as said above you should be able to make a reasonable estimate for the remaining few months.

With an estimated net profit you should be able to deduct the personal allowance and then work out how much tax you’ll be due roughly at whatever your marginal rate is. You’ll need to account for NIC as well. There should be an online calculator you can plug the number into.

Whatever your estimated tax bill is, half it and that will be your first payment on account.

I’d echo the advice above to overestimate. Once the tax year is finished, if you’re organised you should be able to submit your tax return before the second payment on account is due by the end of July which will then give you your actual liability and your second payment on account will be adjusted accordingly.

There’s no need to wait until a week before the filing deadline to submit your tax return - I’ve never understood why people do this, especially those who’ve never done it before and may need some extra time and help. You can do it from April onwards!

crazy_kitten

Thanks. Yes, I know I should have sorted this out sooner.

Thinking about it further it is hard to know what my net profit for this year will be. Compared to this time last year it is currently much lower but I just don't know what job might come in. I could get contacted by one client on Monday with a big job for example. Whilst it's looking unlikely I'll earn what I did in the previous year, it's not entirely impossible.

Am I perhaps better off just paying the first payment on account now and claiming anything over paid back when I file my next tax return - which I'll be sure to do in April this year?

sheramber

If you are working PAYE as well as your self employment then your personal allowance will be used up against your PAYE income.

So your self employment profit will be chargeable at 20% or 40 % depending on what your PAYE income is.

crazy_kitten

Yes, I'm working PAYE as well self employed.

00ec25

crazy_kitten wrote: »

Yes, I'm working PAYE as well self employed.

so your situation cannot be more simple

expected self employment profit x applicable income tax rate
plus
expected self employment profit x relevant NI rate
less
income tax and NI due on this return

divide by 2 and you have your expected POA
deduct that from this years POA and you have the amount you wish to reduce it by
add a bit back on to provide a safety margin

[Deleted User]

00ec25 wrote: »

so your situation cannot be more simple

expected self employment profit x applicable income tax rate
plus
expected self employment profit x relevant NI rate
less
income tax and NI due on this return

divide by 2 and you have your expected POA
deduct that from this years POA and you have the amount you wish to reduce it by
add a bit back on to provide a safety margin

Not being pedantic but, on your last Point, I believe that one is asked what the payment should be reduced to, not by.

http://www.baseaccounting.co.uk/pdfs/SA303.pdf

00ec25

[Deleted User] wrote:

Not being pedantic but, on your last Point, I believe that one is asked what the payment should be reduced to, not by.

http://www.baseaccounting.co.uk/pdfs/SA303.pdf

it is not pedantry when your correction is valuable and correct