31 July deadline looms for payment on account
Andrew Shaw, partner at Kingston Smith LLP, explains how taxpayers who have suffered a reduced income may be able to pay less tax on 31 July.
In the current economic climate, self-assessment taxpayers including small business owners, partners and contractors, may find that their taxable income has reduced over the last year or two. Those who earned less in 2011/12 than the previous year could find a silver lining on this cloud, as they may be able to pay less tax on 31 July, by working out their actual income for that year.
The deadline for the self-employed and others due to make their second income tax payment on account is at the end of this month and the payments are calculated based on your tax liability for the previous year (2010-11); half is paid on 31 January and the remaining half on 31 July.
The law looks at your total income from all sources in the previous year, and this determines the payment on account required for the current year. In this challenging economic and interest rate environment, many taxpayers find themselves with less income than before - so not only is a reduced payment justified, but it also helps with current cashflow.
Taxpayers are advised to make a claim to reduce the payments on account online by 30 July. You must remember that if you ‘over-reduce’ your payment, HMRC will charge you interest on that underpaid amount once the final figures are determined. However, you must ensure you take ‘reasonable care’ in making the application to reduce the payment, as HMRC may otherwise seek to recover a penalty in addition to the interest.
Where the payment on account figure is correct, but you are unable to pay the tax due, help is at hand in the form of the Business Payment Support Service (BPSS). You may be able to spread the payment of your tax bills, on which you will need to pay interest on the outstanding balance, but not surcharges or penalties. You should aim to contact them sooner rather than later and be prepared to provide them with full details of your circumstances to justify deferring your liabilities.
Payments on account apply to individuals whose previous year’s tax liabilities were over £500 or if the tax on their non-PAYE earnings was 20% or more than the total tax due for the year.