Later this month, thousands of self-employed individuals will be making a payment on account to HMRC. Our Accountants in Bolton can offer you advice on the matter if you’re unsure how much you owe HMRC.
Payments on account are part of the self-assessment process – they spread your tax bill across two instalments over the year, designed by HMRC to reduce the amount of people in debt to them. However, as the tax is only a prediction based on your previous year’s earnings, there are thousands of people who over pay if their income reduces.
The trick is to have your tax return submitted or drafted by your accountant in advance of the July payment being made. Yes, you may have already made one payment in January, but why overpay again?
Most worthy accountants will always try to forecast your current year liability, as with CHW, when submitting last year’s return. However, this is just a forecast, and like most forecasts it may have skewed from the reality somewhat.
There is only one way to combat this and produce actual results to ascertain whether the liability is more or less than either what it was last year or what was forecast.
What to do if your income is less this year, than last year?
Payments on account can be somewhat problematic if your income in the previous year was substantially higher in one year, than the next. As you’ll effectively be overpaying tax, you can therefore request your payments on account be reduced by HMRC.
If you reduce your payments on account too much, and realise that your actual liability is more, you will then owe the underpayment from January plus interest and a revised payment on account for July. If you do not submit your return until later in the year, you would have a larger balancing payment to make in the following January plus a larger interest bill!
A proactive accountant should be able to advise you on your upcoming liability before the deadlines, therefore you can be in a better position to discuss your over-payments with HMRC. Paying over too much to HMRC can have a big impact on cash flow, particularly if your earnings significantly change.
The trick is to complete your return in advance of the July payment on account being made so that you either receive the benefit of a refund or reduce the amount of interest you may be liable to.
If you need help completing your payment on account, don’t hesitate to contact our Accountants in Bolton for more advice. HMRC are also streamlining the mortgage application evidence process.
Want to find out how we can help you and your business? Get in touch today and let's have a chat.