Payment on account !!

Aln_f

WHY is HMRC allowed to deduct "payments on account" ?
I am a self employed Joiner and earn a modest income.
I was quite prepared for the tax that I was due to pay on 31st January but was NOT prepared ( and not very happy) for the advance payment that HMRC want at the same time and another advance payment in July.
How can it be fair to claim tax on money which hasn't been earned yet ?
The money I will now NOT have COULD have been earning interest.
I believe that if I don't pay it i will be charged interest !
If I get a rebate ( which I'm pretty sure i will do as my circumstances have changed) will they add interest to the amount that I could have had in a high interest account or in premium bonds ( which may have won a million pounds)
Should this be allowed to happen ?
         

Caz3121

https://www.gov.uk/understand-self-assessment-bill/payments-on-account

Reduce your payments on account

If you know the tax you owe is going to be lower than last year, you can ask HM Revenue and Customs (HMRC) to reduce your payments on account.

You can do this either online or by post.

You will need to include the amount you expect to make so HMRC can use this to work out your new payments on account.

Dazed_and_C0nfused

Aln_f said:

WHY is HMRC allowed to deduct "payments on account" ?
I am a self employed Joiner and earn a modest income.
I was quite prepared for the tax that I was due to pay on 31st January but was NOT prepared ( and not very happy) for the advance payment that HMRC want at the same time and another advance payment in July.
How can it be fair to claim tax on money which hasn't been earned yet ?
The money I will now NOT have COULD have been earning interest.
I believe that if I don't pay it i will be charged interest !
If I get a rebate ( which I'm pretty sure i will do as my circumstances have changed) will they add interest to the amount that I could have had in a high interest account or in premium bonds ( which may have won a million pounds)
Should this be allowed to happen ?
         

I think you have got your dates mixed up.  

POA for 2024-25 are due on 31 January 2025 and 31 July 2025.

31 January 2025 is nearly 10 months into the 2024-25 tax year.

31 July 2025 is nearly 4 months after the end of the 2024-25 tax year.

If you were an employed joiner (or being paid under the CIS rules) you could well have being paying tax for 2024-25 on 6 April 2024.

If you pay the POA and when you file your 2024-25 return the actual amount due means the POA are reduced then yes, HMRC will credit you with interest.  Which can be paid out to you if you have nothing outstanding on your Self Assessment account.

https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates#income-tax-national-insurance-contributions-capital-gains-tax-stamp-duty-land-tax-stamp-duty-stamp-duty-reserve-tax-from-1-october-1999-and-vat-for-periods-starting-on-or-after-1-january-2023

Nomunnofun1

Aln_f said:

WHY is HMRC allowed to deduct "payments on account" ?
I am a self employed Joiner and earn a modest income.
I was quite prepared for the tax that I was due to pay on 31st January but was NOT prepared ( and not very happy) for the advance payment that HMRC want at the same time and another advance payment in July.
How can it be fair to claim tax on money which hasn't been earned yet ?
The money I will now NOT have COULD have been earning interest.
I believe that if I don't pay it i will be charged interest !
If I get a rebate ( which I'm pretty sure i will do as my circumstances have changed) will they add interest to the amount that I could have had in a high interest account or in premium bonds ( which may have won a million pounds)
Should this be allowed to happen ?
         

You do realise that the balance owed is in respect of 2023/24 which ended ten months ago. The additional payment of, usually, half of that amount
is not an advance payment - it is a payment on account of 2024/25 which has only two months or so left to run. Presumably the balance owing for 2023/24 has exceeded £1000. When filing the return for 2024/25 you can deduct these payments from your liability for that year. 

This system has been in place and has not altered in any way since self-assessment was introduced in 1997/98. 

FlorayG

I know, it's annoying and caught me out the first year but the 'payment in advance' is tax you owe for THIS year we are already in for which you do your tax return in April 2025, so you do actually owe it, it's just that you don't do the calculations until April. I would guess it was originally introduced to ensure people have the money available to pay what they owe instead of getting to April, having a bill of several thousand and not having saved any money to pay it. If you put away your expected tax in a savings account every month then when you get this request for 'advance' payment you have the money available to pay it

uknick

As the issue of payments on account come up this time every year, I wondered when they first came in.  According to the HMRC tax manual, they were here in at least 1970 under section 9 of the Taxes Management Act 1970.

SALF303 - Payment of tax: payments on account - HMRC internal manual - GOV.UK

mybestattempt

uknick said:

As the issue of payments on account come up this time every year, I wondered when they first came in.  According to the HMRC tax manual, they were here in at least 1970 under section 9 of the Taxes Management Act 1970.

SALF303 - Payment of tax: payments on account - HMRC internal manual - GOV.UK

Self assessment was introduced in 1996/97 (for some partnerships it was 1997/98).

The Finance Act 1994 set out the changes to be made to the Taxes Management Act 1970 to include new provisions to that legislation relating to the requirements of the self assessment regime.

S9 TMA 1970 is the legislation which imposes the requirement to make a self assessment return.

The legislation at S59A TMA 1970 is the charging provision for payments on account of income tax.

Neither were in force as such before 1996/97.

uknick

Thanks for pointing out the Government put in place an act nearly 30 years before it was actually needed.

I can see why I got confused as this must mean the Government was planning for tax rules nearly 30 years after its 5 year term ended.  Not something that happens today.

Grumpy_chap

Aln_f said:

I was quite prepared for the tax that I was due to pay on 31st January but was NOT prepared ( and not very happy) for the advance payment that HMRC want at the same time and another advance payment in July.

         

If you were an employee on PAYE, you would ordinarily have paid all your tax for 2023 - 24 by the end of March 2024 (monthly payroll).
You are now (January) paying whatever tax is due for the 2023 - 24 tax year, so you have enjoyed an interest free loan on that amount for 10 months.  Of course, while you have had that money, you could have earned interest on it or won the premium bonds with it.

If you were an employee on PAYE, you would ordinarily start paying income tax (for 2024 - 25) from April and by the end of this month will have paid 10/12ths (~80%) of your annual income tax and will have paid it all by end of March (again considering monthly payroll).
You are now being asked to pay by the end of this month half of the forecast income tax liability for 2024 - 25 so, again, an interest free loan.
You will then be asked to pay the second half of the forecast income tax liability for 2024 - 25 by the end of July.  Yet another interest free loan.
If the final income tax liability is different from the forecast, you will be required to submit the details and make payment by the end of January next year (or will receive a refund).  If your actual income tax is less than the forecast, then you can submit the tax return quicker following the end of the tax year and receive the refund back sooner.

If there is a reason why you think that the current tax year income tax will be less than the previous tax year, you can submit a claim for the payment on account to be reduced.  I think there is even a box for this on the tax return (page TC1 boxes 10 & 11 plus page TC2 box 17).

What is your reason that you think the income tax liability for 2024 - 25 will be less than the year 2023 - 24 tax return?  At least, given you are 10 months into the current tax year for which you think income tax liability will be reduced, you will be making that assessment from a position of fairly certain knowledge.

Nomunnofun1

uknick said:

Thanks for pointing out the Government put in place an act nearly 30 years before it was actually needed.

I can see why I got confused as this must mean the Government was planning for tax rules nearly 30 years after its 5 year term ended.  Not something that happens today.

Not the case. When payments on account came into being in 1997/98 they had determine what types of income would be included. 

Payments on account are normally required if the taxpayer was assessed to income tax under section 9 Taxes Management Act 1970 in the preceding year

So - what type of income is subject to payments on account?

That income assessable under TMA 1970. 

Bookworm105

Aln_f said:

WHY is HMRC allowed to deduct "payments on account" ?
I am a self employed Joiner and earn a modest income.
I was quite prepared for the tax that I was due to pay on 31st January but was NOT prepared ( and not very happy) for the advance payment that HMRC want at the same time and another advance payment in July.
How can it be fair to claim tax on money which hasn't been earned yet ?
The money I will now NOT have COULD have been earning interest.
I believe that if I don't pay it i will be charged interest !
If I get a rebate ( which I'm pretty sure i will do as my circumstances have changed) will they add interest to the amount that I could have had in a high interest account or in premium bonds ( which may have won a million pounds)
Should this be allowed to happen ?
         

like many self employed you simply do not understand what you looking at ...

up to half of their annual income sits in their pocket for up to 10 months before they have to pay tax on it 
the remaining half sits in their pocket until "long" after they earned it before they pay tax on it 

now complain about being hard done by in comparison to an employee who gets money with all tax already taken from it ...
the self employed can make a mint if they manage their cashflow correctly as they have time to invest their money before having to use it to pay tax