I have been asked many times recently to explain to clients and friends how HMRC's payments on account system works when submitting an SA100 Self Assessment tax return.
It is probably best explained by way of an example: (The figures below can be downloaded in a PDF file attached to this post)
Self-Assessment Payments on Account Guide
This is the first year of trading and therefore no poa's already made.
Total tax due 2007-2008 £2,120.00 Example figure
2008-2009 1st PoA (Half of prev yr) £1,060.00
January 31st 2009 Payment Due £3,180.00
All 07/08 plus half towards 08/09
2008-2009 2nd PoA £1,060.00
July 31st 2009 Payment Due £1,060.00 2008-2009 PoA only
Total Paid £4,240.00
Total PoA for 2008-2009 Paid £2,120.00
Total tax due 2008-2009 £3,560.00 Example figure
Already paid on account £2,120.00
2009-2010 1st PoA £1,780.00
January 31st 2010 Payment Due £3,220.00 08/09 less PoA's + half towards 09/10
2009-2010 2nd PoA £1,780.00
July 31st 2010 Payment Due £1,780.00 2009-2010 PoA only
Total Paid £5,000.00
Total PoA for 2009-2010 Paid £3,560.00
Tax Due 2009-2010 £6,340.00 Example figure
Already paid on account £3,560.00
2010-2011 1st PoA £3,170.00
January 31st 2011 Payment Due £5,950.00
2010-2011 2nd PoA £3,170.00
July 31st 2011 Payment Due £3,170.00
Total Paid £9,120.00
Total PoA for 2010-2011 Paid £6,340.00
Tax Due 2010-2011 £7,290.00 Example figure
Already paid on account £6,340.00
2011-2012 1st PoA £3,645.00
January 31st 2012 Payment Due £4,595.00
2011-2012 2nd PoA £3,645.00
July 31st 2012 Payment Due £3,645.00
Total Paid £8,240.00
Total Liability over four years £19,310.00
Total paid over four years £26,600.00
Total paid in advance for 2011-2012 £7,290.00
If you would like an editable version of our calculation file for your own use please use the contact us link and send us a message requesting the editable file.
There is also more guidance from HMRC on the gov.uk website.
The assumption is that as time moves on your business will increase its profits. Once you have payable tax of more than £1,000 then you become liable to make payments on account. These equate to half of the previous years tax liability.
So for example, if you have a tax liability for 2014-2015 of £2,000 you will need to make payments on account towards 2015-2016 of £2,000. These payments are made in two parts, half in January and half in July. Obviously these are then deducted from the bill next year and new payments on account are calculated.
We are happy to explain these figures in more detail and personalise them to your own liabilities if necessary. Just contact us!