Self assessment - basic query

danwednesday

Hi,

Just a quick question to clarify something I'm finding confusing...

I filed my self-assessment tax return recently and was given this information as the last few lines on the return:

2006-07 balancing payment £x,xxx.xx

1st payment on account for 2007-08 due 31 January 2008 £x,xxx.xx

Total Due by 31 January 2008 £xx,xxx.xx

2nd payment on account for 2007-08 due 31 July 2008 £x,xxx.xx

I've been trading as a sole trader for several years, and was up to date with payments etc. However, why am I paying for the whole year 2006-07 AND for the first part of 2007-08 AND the second part of 2007-08 on 31st July? If I'm paying for the current whole year (2006-07), plus for the next year upfront (2007-08) does this mean that my tax payable next year (for the accounting period 2007-08) will be zero?

I'm confused, because it seems like I'm paying upfront for the year, plus again for that year at the end of the year.

I very much doubt that the Revenue have got this wrong, but I just don't understand it. Can anyone explain this?

Thanks for any help folks...

silvercar

I had the same.

The tax next January will be for half of 2008-09 on account and the same again in July 2009.

So they are moving you over to pay for the year in question afew months before and a few months after the end of the tax year in question. Upto now you have been paying your tax well after the end of the tax year which has (allegedly) given you a massive advantage compared to PAYE. This is designed to rebalance, but it does hit you hard now!

danwednesday

So this is a new fiscal policy then? When did this come into place? So in theory, after I've paid the "2nd payment on account for 2007-08 due 31 July 2008" my next tax bill (to be paid by January 2009) should just be for the 12 months from April 2008 to April 2009? So then we'll be paying tax on the money we've not yet earned (effectively from whenever you do your tax return until the following April)!? Are you sure about this?

silvercar

my next tax bill (to be paid by January 2009) should just be for the 12 months from April 2008 to April 2009?

You will have earned it. January 2009 is three-quarters of the way through the tax year, so you should have earned half your money for that tax year by then.

danwednesday

Okay, thanks silvercar. Can anyone find any legislation or publicity about this? I imagine it could have cought out thousands of people - suddenly being expected to pay 24 month's worth of tax in a year.

Without my files to hand I can't check, but I'm sure this isn't new though - I'm sure they usually take a payment on account, but it really does confuse me; what I'm paying for and when it's paid!

Mikeyorks

danwednesday wrote: »

I'm confused, because it seems like I'm paying upfront for the year, plus again for that year at the end of the year.

No - if your tax due for the previous year exceeeded £500, you have to make payments on account of the following liability .... 31st Jan and 31st July.

It's not new .... has always been the case since SA arrived in 1997. Bit of info here :-

http://www.hmrc.gov.uk/sa/selfemp.htm#4

danwednesday

Thanks Mikeyorks, I didn't think there could have been such a huge change in policy without making people aware. I'm still a bit confused though. This year (from January 1st to December 31st 2008) I'll be paying a full year's tax for 2006-07 AND a full year's tax 'on account' for 2007-2008. When I then do my tax return next January, presumably I'll be paying for 2007-2008 and on account for 2008-09 - hence double payment for 2007-08, no?

System

danwednesday wrote: »

This year (from January 1st to December 31st 2008) I'll be paying a full year's tax for 2006-07 AND a full year's tax 'on account' for 2007-2008. When I then do my tax return next January, presumably I'll be paying for 2007-2008 and on account for 2008-09 - hence double payment for 2007-08, no?

No that's not correct. When you complete your 2007-2008 tax return they will calculate what your liability is and send you out that calculation. Then you will receive a statement which will show that the payments on account you made for 07/08 on 31st Jan 2008 and 31st July 08 have been set against your liability for 07/08.

If the payments you made on 31st Jan 08 and 31st July 208 don't cover all of the tax owed for the 07/08 tax year you will be expected to pay the balance by 31 Jan 09.

The statement will also tell you what your payments on account for the 08/09 will be and they will be due on 31st Jan 09 and 31st July 09.

So basically you are paying your tax in arrears every 6 months compared with those of us who pay per week or per month.

BTW if you want to complete a paper tax return for 07/08 HMRC will ony accept them up to 31st October 2008. The return can be completed online up to 31st Jan 09.

danwednesday

Thanks Pam17 - that makes sense in principal, but I'm still confused by the fact that last year I would have made a full payment for 2005-06 and payment 'in advance' for 2006-07, but when it came to pay this year, no deductions were made for that payment covering 2006-07 - I'm paying the full whack for 2006-07 again. If the same happens this year, come January 2009 I'll be paying for 2007-08 as well as upfront for 2008-09, even after having made payment for that period on 31st Jan and 31st July. I'm just not sure why I'm paying for 2006-07 and 2007-08 this year, when last year I would have made payment for 2006-07 upfront?

Mikeyorks

danwednesday wrote: »

no?

No .... it works as Pam said. You'll need to go back and check the 'on account' payments you made for 06-07 .. as they should have been set against the full liability?

More recent Statement (they're not the easiest to read) should really show the whole picture. Bit unusual if HMRC haven't credited payments to the correct account .. particularly if you pay using their pre-printed payslips (cheque / Giro) as the processing kit (HMRC / A&L respectively) automatically captures the Ref number from the codeline.

(from your first post .. the "2006-07 balancing payment £x,xxx.xx" should literally be just the balance. i.e the total 2006-07 liability .. but less the payments on account made the previous July / Jan?)

danwednesday

Okay, so basically I need to go back and check that the payments I've been making on account have been deducted from the bills I've been paying. Thanks for your help folks.