Self assessment - payment on account question

[40SomethingFabulouslyClueless]

I've just done my annual self assessment and the calculation shows a huge lump for 'payment on account' to be paid in January (on top of 2013-2014 tax due) and another lump in July. It looks like HMRC are collecting the tax ahead of the year (2014-2015), but I haven't earnt the money yet!

Is this right?

Yes, it is right. They assume that you will need to pay the same amount of tax next year, and collect some of it in advance.

If there is a particular reason why you have had to pay a lot of tax this year, that won't be the case next year, then you can ask them to consider waiving the payment on account. I did this when I sold a property - I had been paying tax on the profit from the rental income, so when I sold it I wrote that on the tax return (pointing to all the CGT calculations!) and they accepted that as evidence that I wasn't expecting to owe them anything the next year.

My tax will be roughly the same next year as this year.

Is there anyway of cutting it down or deferring until the money comes in? I can't believe they can take money that doesn't yet exist.

You could try and make a time to pay arrangement with them. They are generally more amenable if you phone up and try and sort this out earlier rather than when the tax is due

Make sure you don't get caught in the tax death spiral though where you are using money set aside for next year's tax for this year.

The good news is that as you are paying in advance, you will get a rebate or even a repayment next year if you earn less than expected

Well it kind of does.

You are paying it in installments in the year for which it is earned, as Paye also operates.

When you have completed a year it becomes a rolling basis so you won't have the big lump sum again, unless your income increases drastically one year.

If tax due is less than £500 per year you don't need to make Poa in July, so it does alllow for lower earners to pay after the year end.

I assume this is the first year you have had to complete SA for? If so, just think thtat you are only now (well by end jan 2015) paying tax on income earned as long ago as April last year!

If it's for tax year 14-15 then some of it does already exist, by the time you get to Jan you will have earnt most of it surely? Seems like a sensible way of spreading the payment to me, PAYE is as you go along why should self assessment be different.

YY, OP it seems has due in Jan 2015 the full tax/Ni for 2013-14 tax year and 1st Poa (50% of tax) for 2014-15 year.

In July 2015 she will pay 2nd poa for 2014-15.

Then Jan 2016 when 2014-15 return is complete she will pay any remainder owing/or receive credit if in-year Poa's were too high and the first Poa due for 2015-16 (at 50% of tax due for 2014-15)

This payment willl be much lower than the January before as the in-year Poa's have already taken care of most/all/some of the tax due.

and so it rolls on...

Self assessment gives far greater control over tax/pension payments than Paye but it;s just a question of getting used to the new routine for payment.

Yes, you are all, of course, right; I have already earnt some of it. I was thinking it was the calendar year until the tax return is due, rather than 4 April. It just wipes out my profits for this year. Just as well I haven't it all yet rewrites the family's Christmas present list

Thank you for your help.

If you can demonstrate a need, the business payment line might let you spread it out over 3 or 6 months.

Hmrc linky

I'd advise telling them that you have a few late paying customers and times are hard. And No you don't have access to credit cards to pay it

If you lay it on thick they'll likely let you spread it out but you have to pass a pleading test it seems these days, grrr!

Uh. Just as well I haven't SPENT it all yet.

Thanks TheGirlFrom, I'll take a look. Suspect I just need to bite the bullet and tighten our belts

It's the first self assessment as self employed that is a killer as it is effectively 18m tax in one go. After that it's fine as you're paying for half the year gone and half the year to come in each go.