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Where Taxpayers and Advisers Meet

Income tax and money account for subsequent years?

tempusfugit
Posts:7
Joined:Sun Nov 04, 2012 7:27 pm
Income tax and money account for subsequent years?

Postby tempusfugit » Sun Nov 04, 2012 7:37 pm

Dear Members,

I am self employed and awaiting the outcome of my tax return. I have will be facing income tax/class 4 payments.

However, I have been alerted that if my income tax/class 4 totals £x for April 06/ 11 - April 05/ 12, I will also be facing on Jan 31st/13 not only £x but also an additional £(x/2) on top so will be facing a payment of £(3x/2) Jan31st/13 and then £(x/2) in July 31st/13. How is this justified?

Can someone tell me how this works out as I will not have earned the extra income to pay two lots of income tax? Will it be like this every year?

Sorry for query its just that its all new to me!

Thank you for your help,

Simon

mullet
Posts:3242
Joined:Fri Nov 06, 2009 9:26 am

Re: Income tax and money account for subsequent years?

Postby mullet » Sun Nov 04, 2012 10:22 pm

You are right. Imagine that your tax liability for 2011-12 is £5,000 and for 2012-13 it is £6,500. The payment dates (with 2011-12 being your first year) will be:

31-01-2013 £5,000 + £2,500 first payment on account for 2012-13
31-07-2013 £2,500 second payment on account for 2012-13
31-01-2014 £1,500 balance for 2012-13 and £3,250 first payment on account for 2013-14

POAs are half of the previous year's tax/NIC liability. If you have paid too much then you get the excess back when you submit the tax return showing a liability less than the previous year. If you believe that the POAs will be excessive (and by 31-01-2013 you are almost through the 2012-13 tax year and your accounting year could even have ended) you can ask HMRC to reduce them on form SA301.
Can someone tell me how this works out as I will not have earned the extra income to pay two lots of income tax? Will it be like this every year?
Yes, this is how it works. In practice though you will be almost through a second tax year, so I suppose it could be argued that you have indeed had the extra income. Indeed, if your accounting year ends on a date before 31 January then you will definitely have "had the income".

tempusfugit
Posts:7
Joined:Sun Nov 04, 2012 7:27 pm

Re: Income tax and money account for subsequent years?

Postby tempusfugit » Sun Sep 29, 2013 10:27 pm

Hi there, you recently advised me on poa's and you gave a good example to help me understand how this all works which was:

You are right. Imagine that your tax liability for 2011-12 is £5,000 and for 2012-13 it is £6,500. The payment dates (with 2011-12 being your first year) will be:

31-01-2013 £5,000 + £2,500 first payment on account for 2012-13
31-07-2013 £2,500 second payment on account for 2012-13
31-01-2014 £1,500 balance for 2012-13 and £3,250 first payment on account for 2013-14



Can you please extend this example further and let me know if the POA for the previous tax year is deducted from the tax bill on the following year or is that wishful thinking :D

Many thanks,

Simon

LozaACCS
Posts:1504
Joined:Wed Aug 06, 2008 3:55 pm

Re: Income tax and money account for subsequent years?

Postby LozaACCS » Wed Oct 02, 2013 9:53 pm

When you file your 12/13 return by 31/01/14 the liability of £6,500 will be reduced by the 2 POA already made, you will therefore need to pay £6,500 less £5,000 = £1,500.
You will however need to make payments on account for 13/14.

Assume the final liability for 12/13 is not £6,500 but £7,500.

In this case your balancing payment on 31/01/14 would be £7,500 less £5,000 = £2,500.
You would then make the first POA (on 31/01/14) for 13/14 of 50% * £7,500, ie £,3,750
Your total payment on 31/01/14 would be £2,500 + £3,750 = £6,250

Your second payment on account of £3,750 would be due on 31/07/14.

Assume the final liability for 13/14 is £6,000.
The last filing and payment date is 31/01/15
You will pay £6,000 less the 2 POA £7,500 = (£1,500)
Your first POA for 14/15 will be £6,000 * 50% = £3,000
Your liability at 31/01/15 will therefore be £1,500
The second POA on 31/07/15 will be £3,000


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