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
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here 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 information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.