I'm self employed and my accountant gave me the solemn news about my tax bill for 2015-2016 including advance payments of an additional 50% of my tax to pay in advance of 2016 to 2017 and then I have to pay another 50% again in July. So you're paying two lots of tax in the same year. This is standard practise of course devised by HMRC but it kind of bugs me. Why should we obliged to line their coffers beyond the amount due for the tax year submitted? What about the fact that I lose interest on the money I'm giving them in advance and they can earn interest on it instead of me. Does anyone else feel the same?
Paying tax on account
- Thread starter Merlin5
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Yes but those paying PAYE might pay in month 1 but only 1/12 of your expected tax bill whereas those in self assessment pay 6/12 for the NEXT year.
Yes OP it kinda sucks, but them's the rules.
I saw a case recently where someone paid £0 of their account payments for 2016 - Modest bill but still got £85 interest added for non payment.
Yes OP it kinda sucks, but them's the rules.
I saw a case recently where someone paid £0 of their account payments for 2016 - Modest bill but still got £85 interest added for non payment.
Caporegime
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It goes up and it goes down as you move through the years.
One year I will have to pay tax, January and July. Then I go through the cycle of upgrading my gear and invest in capital expenditures, I normally have to pay none for a year or get a refund.
One year I will have to pay tax, January and July. Then I go through the cycle of upgrading my gear and invest in capital expenditures, I normally have to pay none for a year or get a refund.
Incorrect.
The first payment on account for a tax year being 50% of the previous tax year's tax bill falls 10 months (31 January to be precise) into the current tax year. The second payment on account falls on 31 July following the tax year.
So it is still paid in arrears of the income accruing unlike PAYE which is deducted as soon as you are paid.
You can also apply to reduce the payments if you believe your tax liability will be lower than the previous year's.
HMRC are asking him to pay half of his bill for Apr 16 to Apr 17, by Jan 17. He is not paying for next year. PAYE people have already paid all tax until Dec 16.
Conceptually the tax is on income and when the income is it earnt it would be taxed, it's only administrative reasons that you get months to finally pay.
No sympathy from me as a PAYE tax payer. You have to stump up 50% of your tax bill 83% of the way through the year? Boo boo.... I have to pay 83% of my tax by then. Plus you get more opportunity to be 'creative' in declaring your earnings and hence how much tax you pay. Not that I'm suggesting you'd be fraudulent, but I'm sure your accountant ensures you do what you legally can to minimise your tax bill.
Is that correct? I'm sure (cant recall 100% as it was quite a long time ago) when I paid my first tax return, I paid my years tax in arrears and a payment on account based on half that years tax. If by next years tax return, you owe more tax than was projected, you pay a balancing payment.
https://www.gov.uk/understand-self-assessment-bill/payments-on-account
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Your first payment on account falls in month 10 of the the tax year. Those of us paying via PAYE have to start paying on month 1 of the tax year, so I don't feel much sympathy
This. I get this all the time from people with tax returns that its not fair they have to pay all this tax up front etc.
And in most cases, people haven't paid anything for up to 18 months previous to their first payment.
I started self employment in April 2015. So far, I've paid nothing in tax. Yes I pay for 15/16 plus 50% of 16/17 by the end of this month but it's hardly "unfair" as I've paid nothing for nearly 2 years!
I started self employment in April 2015. So far, I've paid nothing in tax. Yes I pay for 15/16 plus 50% of 16/17 by the end of this month but it's hardly "unfair" as I've paid nothing for nearly 2 years!
My understanding of this is not that you are paying for future tax but you are paying on your previous years tax.
The example from HMRC seems to demonstrate this to me at least.
This means that in 2017 you are paying your 15-16 bill in Jan17 and July17.
If in Jan17 you haven't paid your 14-15 tax in full with payments made during 2016 you have to clear the balance owing there in your Jan17 payment.
Example
2014-2015 tax bill £1000:
Payments made on account 2016:
Jan-16 £250
Jul-16 £250
Tax owing still from 14-15 = £500
2015-2016 tax bill £1000
Payments to be made on account in 2017
Jan-17 £1000 (£500 for half of tax bill and £500 from owning 14-15 balance)
Jul-17 £500
This is still paying tax in arrears.
I could be wrong here but it seems to make sense.
The example from HMRC seems to demonstrate this to me at least.
This means that in 2017 you are paying your 15-16 bill in Jan17 and July17.
If in Jan17 you haven't paid your 14-15 tax in full with payments made during 2016 you have to clear the balance owing there in your Jan17 payment.
Example
2014-2015 tax bill £1000:
Payments made on account 2016:
Jan-16 £250
Jul-16 £250
Tax owing still from 14-15 = £500
2015-2016 tax bill £1000
Payments to be made on account in 2017
Jan-17 £1000 (£500 for half of tax bill and £500 from owning 14-15 balance)
Jul-17 £500
This is still paying tax in arrears.
I could be wrong here but it seems to make sense.
On the plus side of things your last tax return will only be 50%
It was an amazing idea by Gordon Brown to overnight increase the tax revenue in one year by 50% for the then government. Its equally as galling as the new personal dividend tax that came into effect in April 2016.
Your only hope really is to get your company so big it can avoid paying tax at all
It was an amazing idea by Gordon Brown to overnight increase the tax revenue in one year by 50% for the then government. Its equally as galling as the new personal dividend tax that came into effect in April 2016.
Your only hope really is to get your company so big it can avoid paying tax at all
Soldato
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Its payment in advance so assumes the same tax for the future year as the assessed one - its a prediction. Also you dont have to pay if the amount is sub £1000. Cant recall if thats sub £1000 total or for the Jan / July half payments.
You pay self assessment tax for 2015/16 by 31st Jan 2016. The prediction than allows for payment of 6months worth of tax 10months into the year. Seems reasonable to me..... although my bill is only £800 this year so I have nothing to pay in addition
I pay my tax weekly being self employed as is. I can't see why this hurts so much your accountant can probably sort it out so you pay very little/none or they even owe you :') Creative accounting or perhaps a new lease vehicle can soon offset a lot of this
For the first couple of years I was paying whole tax bill before 31/JAN of following year ... now
Jan 31 2017 pay balance of 2015-2016(apr) tax
then also pay 1/3 of 2016-2017 tax on same date (estimated)
Then in July 2017 pay another 1/3 of 2016-2017 tax bill (estimated)
and finally Jan 31 2018 pay remainder of 2016-2017 tax bill
Its not too bad having it split up but does mean Jan payment is a big one
Jan 31 2017 pay balance of 2015-2016(apr) tax
then also pay 1/3 of 2016-2017 tax on same date (estimated)
Then in July 2017 pay another 1/3 of 2016-2017 tax bill (estimated)
and finally Jan 31 2018 pay remainder of 2016-2017 tax bill
Its not too bad having it split up but does mean Jan payment is a big one