Reducing Payments on Account

I recently paid my tax bill in January, but I remember my accountant suggesting that I could possibly reduce the payments. As business has been really poor in the last few months I am expecting my income to be substantially less than the previous tax year. Can I reduce the amount that is due?

1st February 2009

Payments on account represent 50% of the individualís net tax liability for the previous year. All individuals are liable to make these payments unless their net tax liability is less than £500, or more than 80% of the tax due was deducted at source. From January 2010 the HMRC are proposing to increase this £500 limit to £1,000.

Given that your income is likely to be significantly less than the previous year which the payments on account are based on, you can claim to reduce these payments. The amount that you reduce these to should reflect your estimation of your tax liability for the next tax year.

However, be aware that if it is later found that you have overestimated the fall in your income, and consequently reduce the payments on account by too much, you will be liable to pay interest on the difference between the amounts paid as payments on account and the amount due. Equally if you have underestimated the fall, you will be due a refund and will receive an interest supplement.

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.

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