Wisteria Accountants

The deadline to pay your second payment on account for personal tax is fast approaching.

This payment is towards 2010/2011 and would have been determined by the income shown on your 2009/2010 return.

Your Self Assessment tax return will include a self assessment statement that indicates what tax you owe and how to pay it. One thing to note is that when you receive your tax bill, it might not necessarily always match the amount that you have calculated on your Self Assessment tax return. The reason being that sometimes you’ll owe ‘balancing payments’ for the previous tax year or ‘payments on account’ for the current year. Interest charges may also be shown where applicable.

Many individuals who receive substantial amounts of income which is not taxed at source will often need to make payments on account. The first due date was on or before January 31st 2011 which has already passed, but the second deadline is in just over 3 week’s time on or before 31st July 2011. You will only have to make the two payments on account if the amount of tax from the previous year that you have to pay is more than £1,000 (with the exception that if more than 80% of the last year’s liability was covered by tax taken off at source.) If however, the tax you have to pay from the previous year is under £1,000, then you will only have to make one single balancing payment each year.

Each of the two payments, given that the tax from the previous amounts to more than £1,000, should be equal to half of the total amount of tax that you owe. An easy way to understand this is to have a simple example.

Imagine the tax you need to pay is:

Income Tax: £6,000
Class 4 NIC: £400

These payments on account would mean that you would have already paid £3,000 + £200 (£3,200, which is 50% of your total tax) on or before January 31st 2011 and the amount that you would have to pay on or before July 31st 2011, would amount to £3,200 (the other 50% of the tax you need to pay).

The main reason why it is essential to stick to these deadlines is because if you don’t, then you are liable to significant interest charges. Some people decided to make an application to reduce their tax payments on account. This is allowed and can be beneficial where your tax liability will fall, perhaps due to a change in circumstances or a fall in business profits. However care should be taken as reducing the payments too far can result in additional backdated interest charges.

For the above reasons, it is vital that you prepare your self assessment tax returns accurately and in good time. We at Wisteria Chartered Accountants, Tax and Business Advisers can assist with your Self Assessment Tax Returns and if you would like more information contact one of our advisors on 020 8952 0140 or email us at info@wisteria.co.uk.