Personal Tax – 'Payments on Account' explained
As we approach the end of August, it’s hard to believe that the Personal Tax Year ended 4 months ago – on the 5th of April 2012.
To help us prepare their personal tax return our clients have been completing and sending in our checklists since May and often they have questions.
For this reason, it seems like a good time to go over our more frequently asked questions relating to ‘Payments on Account’.
What are ‘Payments on Account’?
Once we have prepared and completed your Personal Tax Return for April 2011 to April 2012 –we’ll also calculate how much Tax is to be paid to HMRC. We will advise you of the amount due, how you make payment to HMRC and when the payment is due.
The first payment for your Personal Tax will be due on or before 31st of January 2013. This will comprise the full Tax (often known as your ‘balancing payment’) due for the period 6th April 11 to 5th April 12, plus (if you have one) your first ‘Payment on Account’ for the 2012 to 2013 tax year.
If your tax bill is over £1,000, HMRC estimate that you will have the same amount of tax to pay in the coming year (April 12- April 13). This amount will be split in two; you will pay half of the amount in January 2013 and the other half in July 2013.
Then your second ‘Payment on Account’ will then need to be made on or before 31st July 2013.
If your Personal Tax Bill for April 2011 to April 2012 is less than £1,000, HMRC will not calculate any ‘Payments on Account’ for the 2012-2013 period.
What should you do if you think your Payments on Account are too high?
It’s important to bear in mind that the Payments on Account are calculated under the assumption that your income will be the same each year – they could therefore be too low or too high. Because we get to know our clients, and are usually aware of any changes to their situation, we can update the payments on account accordingly. Don’t worry, if you have overpaid we can help you reclaim your money by contacting HMRC
Important facts about Personal Tax Return ‘Payments on Account’
- Payments on account are required if your tax bill is greater than £1,000.
- Payments on account are 50% of the tax due from the previous year.
- Collection of payments on account will be made in the exact same way as the January 31st payment. (Interest will accrue if your payment is late).
- Contractors and Freelancers who have experienced a sudden fall in income may need to negotiate a reduction of their payment on account with HMRC because it no longer accurately reflects their projected tax liability.
- No payments on account are required in respect of capital gains tax or Student Loan repayments (they would only be made in the January 2013 payment).
Please give your FW Accounting Account Manager a shout if you have any further queries and we will be more than happy to help.
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