Should you reduce your July payment?
The second payment on account deadline of 31 July is fast approaching.
Payments. If you have significant income that isn’t taxed through PAYE (or otherwise at source), it is likely that you make payments on account of your tax liability. This is where HMRC automatically collects an estimate of your tax liability on 31 January in the year, and 31 July after the year end, with a reconciliation taking place when the tax return is filed. By default, these payments are set at 50% (each) of the income tax liability for the prior year as it is assumed that income levels will remain more or less the same.
Affected. You should only be within the payments on account regime for the current year if both of the following are true for the prior year:
- less than 80% of your total income tax liability was deducted at source; and
- the total amount not deducted at source was more than £1,000.Too much tax. Sometimes the assumption that the tax due will be the same is incorrect. For example, you made a large pension contribution qualifying for income tax relief in the current year, or your income has decreased. You can claim to reduce your payments in these circumstances, but how can you work out what is the correct amount?
- For help with your Payments on Account and any tax related queries contact 01473 558866 to book a meeting with a Tax Advisor.
- If you had your tax liability coded out, you should not need to pay interim payments.
Source:- Tax Essentials for Advisors
Disclaimer:- The information contained herein is given by way of general guidance only and no action should be taken solely on the basis of the information contained herein. The Avanti Group (UK) Ltd will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any action taken without seeking appropriate professional advice.