In January, most taxpayers are due to make a combination of the previous 2008/09 “balancing payment” and 2009/10 first “payment on account”. Payments on account represent 50% of the individual’s net tax liability for the previous year and are payable on 31st January and 31st July each year. All individuals are liable to make these payments unless their net tax and Class IV National Insurance liability is less than £1,000 or more than 80% of the tax due was deducted at source.
If your income in the 2009/10 tax year is likely to be significantly less than the previous year, you can make a claim to reduce the payments on account becoming due. You should prepare an estimate of your tax and Class IV National Insurance liability for the current year. Each reduced payment on account will then be 50% of that amount.
For example, if your statement currently shows payments on account of £5,000 becoming due in January and July 2010, but you estimate that your total liability for 2009/10 will be £2,000, you can reduce the payments to £1,000 each.
You should, however, take care with your estimation of the current year's liability. If it is later found that the actual liablity for the year is greater than your estimate, the payments on account will be revised to reflect the actual amount due. You will then be liable to pay interest on the difference between the amounts actually paid and the revised amount due. If, on the other hand, the actual liablity is less than your estimate then you will have overpaid tax and the difference will be refunded to you.
By Jo Nockels
Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.