Help me understand my tax calculation summary!!

[Jokat]

I haven't had to pay tax in a long time, so it's been a while and I am so confused.

My summary says:

Total amount due for 2016-17 is £0.00

plus
1st payment on account for 2017-2018 is X (certain amount)

Total to be added to self assessment account due by 31 January 2018 is Y (roughly 3 times as much as X)

2nd payment on account for 2017-2018 due by 31 July 2018 is X

All I wanted was to know how much I have to pay for the past tax year in one go. When do I have to pay the 1st payment on account? And if I pay the 1st payment now, do I then have to pay that large sum (Y) in January on top?

Please help

the amount Y is the catch up payment for 2016-17. I am not sure why it says your liability for 16/17 is zero. first payment on account is due 31st January. Its always a stinker of a month unless your income is falling. Did you earn money in 2016 2017? I am not an accountant but I am self employed so understand a bit

Well, in the tax year 2014-2015 my income was below the tax threshold, so I didn't have to pay anything. In 2015-2016, I earned just over 12000 and had to pay just under 1000 (which seemed a lot to me) in January of this year. In 2016-2017 I earned just over 16000. Amount X is just under 1000, and Y is around 3000.

Considering that my first 10000 or there about are tax free, and I'm in the 20% tax bracket for the remainder, I have no idea why the tax amounts are so high and why they have split it into the amounts they've come up with. I suppose I can only wait until it will appear online (can take about 3 days) and then phone them up and ask

This is my understanding of the situation, but it could be wrong:

You have to pay 'on account', so you are paying off what you owe for last year, plus putting some aside 'on account' for next year. They factor in that your business is growing, and that you are likely to pay more tax next year, so they make you pay so much of that now.

So, when you paid the 1000, that will have been the tax that you owed for that year, plus half (or could be another %) of what they believe you will owe for the next tax year 'on account'.

Then you did your tax return, and knew that you earned 16,000. They took off what you had already paid 'on account', and asked you to pay the rest. They then estimate what they think next year's earning will be, and ask you to make a payment 'on account' for that next period, hence the larger bill.

It should even out a bit if you get to the point that you are taking a regular wage, as the payments on account will even each other out. Sympathies though, its a pain to budget it in!

Think of it as if you were receiving PAYE wages- you wouldn't only have your tax bill once a year, it's evened out over the year. That's what they're trying to achieve.

Was some of what you had to pay national insurance?

Thank you for your explanation KnobJockey, that kind of makes sense. Although it doesn't seem fair. Every time I get paid, I put 20% of it away into a savings account to pay my tax with. I shouldn't have to save more than that just because they assume I'll have a bigger income in the future.
Yes Barbara I did, but that was less than £150.

You aren't paying tax for what you earn in the future though, you are paying for what you have already earned.

Payments on account (POA) are based on the previous year total tax liability, split 50/50 over 2 payment dates.

So 6 Apr 16 to 5 Apr 17 (16/17) under an ongoing payments on account system will be POA's of 50% of 15/16 total tax liability. 1st POA 31 Jan 17 (towards the end of the tax year), 2nd POA 31 Jul 17 (after the tax year has ended) and Balancing Payment if the 2 POA are not enough to cover the 16/17 total tax liability on 31 Jan 18 (well after the end of the tax year).

If your income remains fairly static (and tax rules dont change) you don't have much of a balancing payment and your POA just tick over at much the same amount every six months.

With increasing income you are hit on 31 Jan with not only the extra balancing payment for the previous year, but also the increased POA for the current (nearly ended) tax year.

You don't have to pay the POA, although if you have a tax liability for the year you will then incur interest. If you don't pay the total by the 31 Jan due date you get into interest and penalties.

You can ask to reduce your POA, I have done this twice. I am employed (pay tax through PAYE), and also sell through Etsy (pay tax for that through self assessment). When paying my tax for 2013/14 in Jan 2015 they wanted me to pay £1000 (total) on account for 2014/15, but as I had closed my Etsy shop in October 2014 before my DD was born and it would be closed for the rest of the tax year I already knew I would be paying very little tax, so I just gave my reasoning (just a couple of sentences) and proposed £200 total. I actually had to reduce it again in Jan when to my embarrassment I had totally forgotten about the payments on account so had not saved enough to pay what they asked for. I just said I expected my income to be lower this year and suggested a lower amount, which was fine. And I am saving extra for next January!