Is your tax due amount much more than what you initially expected? What is this amount under Payments on Account?
This is an advance on the next year income tax, based on the value of the current year. If you're not making as much money, you can ask for it to be reduced on your tax return or by asking the HMRC directly, explaining why you expect your income to be lower this year.
There is an argument to be made about asking for this if you are genuinely unsure about being able to cover this amount. In such circumstances, you can always set extra aside in your own bank account and let it accrue interest, as opposed to potentially leaving your business short of necessary cash-flow.
You usually have to make these payments in advance, if the tax due for the previous year was over £1,000. However, if more than 80 per cent of this tax has already been collected at source, you won't have to make payments on account.
Most people, however, who were taxable at a rate higher than £1,000 will need to make a ‘payment on account’ for the current financial year; this will be offset against your tax return due next January.
This payment will usually be half of the current amount owed.
The tax man assumes you will earn a similar amount this year as you did last year. You will also be expected to make a further payment in July. If your earnings have remained broadly the same year on year, then this means you’ll have settled your 2013-2014 tax bill. Next January, the only self-assessment tax you’ll need to pay is another payment on account.
Normally this is fine, as you’re generally only ever expected to make a half-payment. However, if this is your first year filing a return then you could have to pay your year’s tax plus 50%. This is where people can get into trouble. Unless you’ve carefully set aside your taxes in a particular savings account as you’ve earned, then you may be in for a nasty shock. Sadly, too many sole traders and small businesses in particular get caught out, so always set aside extra for your taxes.
Other Keywords: rebate; tax due; calculations; two payments; 31 July