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. If you do not make these payments on the due date you will be charged interest.
Given that you have had a poor trading period your taxable profits is likely to be significantly less than the previous tax year which the payments on account are based on, you can claim to reduce these payments. The amount that you reduce these too should reflect the estimation of your taxable earnings for tax year.
However, if it is later found that you have overestimated the fall in your income, and consequently reduce the payments on account by to 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 on the amounts overpaid and will receive interest.
By Jo Nockels
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