Balancing Payment

cafenervosa_2

Hi, i'm a little confused about the balancing payment charge from my self assessment tax calculations. It's not really the charge thats bothering me but why this is an extra payment on top of the tax already owed. I paid all my money owed from last tax year on time and in full, now they are asking for a large balancing payment from 06/07, when indeed all those taxes got paid off. I mean its fair enough that I am billed for 22% income tax plus my NI payments but this other payment is extra, I just want to know why I have to pay it and what its for?

Mikeyorks

On the 31st Jan and the 31st July, each year .... you make 'payments on account' of your next liability. These payments are (subject to a few rules) pitched at 50% of your previous liability.

When you have filed your Return it has showed you owe more than the 'payments on account ..... so you have a balancing payment due to make up the difference.

In essence (CGT etc to one side) you must be due to pay more tax this year than in the previous?

cafenervosa_2

Thats for the reply. I think I understand it better now, they bill you in advance!

I was worried that I was being made to pay more than I was being quoted!

Mikeyorks

cafenervosa wrote: »

..... they bill you in advance!

Oh no they don't;) . You've already had most of the money up to the previous April .... unlike us poor PAYE people who have to pay it up front!

Bit of reading here from the HMRC site - best bit I could find. I did try before but my ISP (Orange) is playing up every night this week .. and I'd already keyed my first reply to you three times! Trust this link makes sense? Look at 3.5 in particular .. for where you expect to earn less after a good year. You can apply to reduce the 'payments on account' where they would otherwise lead to an overpayment in the next (more lean) year. But you can't do that 'just to save a bit' otherwise they backdate the interest if you get it wrong and do owe more than the 2 x 50%s.

http://www.hmrc.gov.uk/manuals/salfmanual/SALF302.htm

cafenervosa_2

Thanks Micky, thats a useful link.

I am on Orange too and want to let you know that my connection has been playing up too all this week with some downtime. I will be dumping them soon me thinks!

Mikeyorks

On the Orange problem ... is it primarily in the evening from round about 2100hrs thru 2215 / 2230hrs.

Their system status shows 'all systems OK' (if you can get to it) ... but my PC knows differently! But I had wondered if it was a more local problem - so a match on timings would help?

MrsJam

Hi, glad I came across this thread because I've been wondering the same re balancing payments. Don't want to hijack your thread Cafenervosa but could someone with better knowledge than mine offer some advice? My husband is self employed and in the year ending 07 his income was £12,294. The balancing payment was for £1,460 with total payment of £2,190 due by end of January 08. We now have to pay a 2nd payment on account for £730 before end of July. On such a small income we can't work out why he has to pay so much tax. If someone could offer advice about this that would great.

Mikeyorks

The tax due on £12,294 would be around £1340 + some NI on top?

Sounds as though this is the first year? So he hasn't made any payments on account up to Jan 08 ...... so the tax for the whole year (£1460 .. from your post) is due as a 'balancing' payment.

But he then has to make payments on account of the liability becoming due Jan 09. And this is calculated at 2 x 50% of the previous year liability and payable (2 x £730) 31st Jan 08 and 31st July 08.

So .... by the time you get to 31st Jan 09 ..... you will have paid most of the tax due for 07-08 (to Apr 08)! Unless, of course, his income has increased for that year and there is a 'balancing' payment also due 31st Jan 09 on top of the £1460 payments on account already made?

But ... do bear in mind that at 31st Jan 09 (and 31st July 09) there will be a further 50% payments on account due towards the liability due 31st Jan 10. And that will be based on the total amount due 31st Jan 09.

Have a read of the HMRC link I posted at #4?