Need help understanding Payment on Account

icicat

Hi all. Every year I get confused over this, though I left myself a note last time, but just want to double check this.

So when I filled out my 22/23 return, I made the following payments on account:

1st payment on account for 2023-24 due 31 January 2024 £1,663.10 - Paid

2nd payment on account for 2023-24 due 31 July 2024 £1,663.10 - Paid

Am I right in assuming both these payments are for my 23/24 tax return I am filling out now? So I will only pay tax on any profit I made over £3,326.20?

It seems obvious given that I've written what the payment is for, though just want to check that is the case.

Dazed_and_C0nfused

icicat said:

Hi all. Every year I get confused over this, though I left myself a note last time, but just want to double check this.

So when I filled out my 22/23 return, I made the following payments on account:

1st payment on account for 2023-24 due 31 January 2024 £1,663.10 - Paid

2nd payment on account for 2023-24 due 31 July 2024 £1,663.10 - Paid

Am I right in assuming both these payments are for my 23/24 tax return I am filling out now? So I will only pay tax on any profit I made over £3,326.20?

It seems obvious given that I've written what the payment is for, though just want to check that is the case.

I honestly have no idea how you can think that 😳.

You will be taxed with the whole of your profit being taken into account in your Self Assessment calculation.  Payments on account are completely irrelevant for this.

In order to provide a helpful explanation could you give a figure of what you think your 2023-24 Self Assessment liability might be (completely ignoring anything whatsoever to do with POA).  It's just an estimate so a helpful explanation can be provided.  Please don't say £3326.20 though.

sheramber

Your self assessment calculation will work out your tax and ni due for your total profit.

If that bill came to £5000 then your payments on account would  be deducted from that amount and you will be due to pay the balance by 31 January.

You will also have to pay the first payment on account for 24/25, which will be half the total charge due for 23/24.

The £3326.20 is not profit it is the amount you have paid on account towards the final charge due.

Bookworm105

your choice of wording is being taken apart by others, but I think you do actually understand the principle you have mis-communicated.

Your 23/24 tax liability total will be offset by the 2 payments on account you made in Jan 24 and July 24.
That may leave a balance to pay when you submit your actual 23/24 tax return (by no later than 31 Jan 25 obviously) or may result in a refund in respect of 23/24's liability.

Dazed_and_C0nfused

Bookworm105 said:

your choice of wording is being taken apart by others, but I think you do actually understand the principle you have mis-communicated.

Your 23/24 tax liability total will be offset by the 2 payments on account you made in Jan 24 and July 24.
That may leave a balance to pay (on or before 31 Jan 25) or may result in a refund in respect of 23/24 liability.

We have been here before with the op.

I think where they get confused is that for some odd reason they expect their payments to be included in the Self Assessment calculation.

And of course that hasn't happened in the first ~30 years of Self Assessment and no doubt never will.

They seem to forget the being patient and viewing their Self Assessment account after submitting the return is the key thing to do and then it will all make perfect sense 🙃

icicat

Thanks guys, sorry if I worded it badly  So yeah as Boomworm said, I understand that the final calculation does not reflect the POA in any way. I usually get confused with the whole POA system, as I used to think the first (January) payment was paying the tax for that year and the 2nd payment (July) was an advance for next tax year. Though now I understand they are both for next tax year and to be deducted from the final calculation payment.

I think a whole year of not thinking about tax returns can bring back the same confusions. That's why I wrote on the notes it's POA for 2024, though somehow I still get slightly confused. Cheers!

eskbanker

icicat said:

I think a whole year of not thinking about tax returns can bring back the same confusions. That's why I wrote on the notes it's POA for 2024, though somehow I still get slightly confused.

Perhaps clearly labelling it as either 2023/24 or 2024/25 tax years would reduce the potential for at least some confusion?