 Payments
on Account
Payments on Account can effectively be considered as early payment
of the following years taxes. They are essentially an estimate
of the next years taxes paid now. The Inland Revenue will generally
look to receive Payments on Account when ever a tax return as
filed shows a balance of tax due. The theory being that
whatever source of income gave rise to the tax balance due is likely
to occur in the following year and therefore payment of tax should be
made earlier than the filing deadline for the following years return.
By way of an example lets say that you file your tax return
for the year ended 5 April 2011 and it shows a balance of tax due of
£2,000. On the 31 January 2012 you pay this amount of tax over
to HM Revenue & Customs. Now by application of the rules on Payments
on Account you will at that time also be required to pay a further £1,000
in respect of 50% of the deemed liability for the following year bringing
the total payable at 31 January 2012 to £3,000. The remaining
£1,000 being payable on 31 July 2012. Now if when you complete
your tax return for the year ended 5 April 2012 the tax return shows
a liability of £2,000 again, you will not be required to make a balancing
payment at 31 January 2013 because you have already paid this amount
during the previous year. You will of course be required to continue
making Payments on Account so that the position remains the same going
forward, i.e. you would be required to pay £1,000 at 31 January 2013
and a further £1,000 at 31 July 2013.
Obviously things do not always work exactly like this and you may
well argue that your tax liability for the current year is a 'one off'
and is not expected again in the following year. In this case
you probably would not be happy to be required to make these Payments
on Account. Fortunately the Inland Revenue have a provision for
this by allowing an individual to apply for a reduction in Payments
on Account to any amount you deem as accurate, including zero if
applicable. The claim should, however, only be made when it is
valid as the HM Revenue & Customs will charge interest on any amount that
is later determined to falsely reduced.
If you have any further questions in this regard please feel free
to
contact us and we will be happy to help.
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