Self-assessment taxpayers urged to budget for payments on account
Small business owners preparing their first self-assessment return have been handed a last-minute reminder tobudget for advance HMRC payments towards next year’s tax bill.
The Low Income Tax Reform Group (LITRG) has sent sole traders and small business owners a final warning ahead of the imminent 31 January deadline to ensure payments on account are understood and paid when necessary.
LITRG Chair Anne Fairpo, LITRG chair, said payments on account’supportedtaxpayers, but were easily overlooked.
Payments on account (POAs) are advance payments towards an end of year tax bill, and are intended to give taxpayers a chance to spread out their payments. Each payment amounts to half the previous year’s tax bill, and are due by midnight on 31 January and 31 July.
For example, if your bill for the 2016/17 tax year is 3, 000 and you made two payments on account last year of 900 each (£1, 800 in total) the total tax to pay on 31 January 2018 is 2, 700.
A “balancing payment” of 1, 200 for the 2016 to 2017 tax year (£3, 000 minus 1, 800)
The first payment of 1, 500 (half the 2016 to 2017 tax bill) towards your 2017 to 2018 tax bill
You have to pay 1, 500, your second payment on account, by midnight on 31 July 2018.
If you’re self-employed, payments on account include class 4 National Insurance contributions (NICs).
Check your payments on account with HMRC
There are two exemptions to payments on account, as outlined by HMRC:
Your last self-assessment tax bill was under 1, 000
You have already paid over 80 per cent off all tax you owe, for example through a tax code or if your bank has deducted interest on savings
in particular, many newcomers to self-assessment fail to factor in these payments on account? when budgeting for their first tax bill and are shocked when they owe more money than expected, Fairpo said.
Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.
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