Payments on account are represented by 50% of the individual’s net tax liability for the previous year, and are used to “prepay” the tax liability due in the following January. They are made up of two payments which are due in January and July. All individuals are liable to make these payments unless their net tax liability is less than £1,000 or more than 80% of the tax due was deducted at source.
Given that your net profit and subsequent tax liability for the 2009/10 tax year is likely to be significantly less than the previous tax year (2008/09) on which the payments on account are based, you can make a claim to reduce them. The amount that you reduce these to should reflect your estimation of the tax liability for the 2009/10 tax year, which is due for payment on the 31st January 2011. Either you or your accountant can make this claim using a form SA303 available from www.hmrc.gov.uk.
However, be warned if it is later found that you have overestimated the fall in your income, and consequently paid too little, you will be liable to pay interest on the difference between the amounts paid as payments on account and the amount actually due. Equally, if you have overestimated, you will be due a tax refund for the year and receive an interest supplement.
By Jo Nockels
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