For some taxpayers, the tax payment they make in January will be the balance of this year’s tax and also, a payment on account for next year. Payments on account are calculated as 50% of an individual’s net tax liability of the current year, and are used to “prepay” the tax liability due for next year- payable in the following January.
You may be liable to make payments on account if your net tax liability is more than £1,000 or less than 80% of your tax due was deducted at source.
Given that your net profit and the associated tax liability for the 2014/15 tax year is likely to be significantly less than the previous tax year 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 2014/15 tax year.
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.
If this is something you would like to look into further, your local TaxAssist Accountant can take care of this and the rest of your tax affairs for you. Please contact us to be put in touch with your local office.
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.