Do you need to pay the Revenue in advance?

Aug 5, 2013

Croombs Chartered Accountants in Hampshire

Following on from last months article about getting your accounts and tax returns in early, I thought it would be useful to discuss tax that you may pay upfront on business or personal profits.

If an individual or self employed business owes around £1,000 in tax for a tax year then it is likely that HM Revenue & Customs will ask for payments on account for the next year.  These each total 50% of the total tax bill for the year and are payable in January and July each year.

For example if you owed £2,000 in tax for the tax year ended 5 April 2013 then this would be due in January 2014 along with a £1,000 payment on account of next years tax.  This means that in January 2014 you would owe £3,000 and in July 2014 you would owe your second payment on account of £1,000.  This means that a total of £2,000 would have been paid in advance against your 5 April 2014 tax liability.

In certain circumstances these payments on account can be reduced without penalties.  These are:

  • Profits have decreased in the current year compared to the previous year due to lower sales
  • Taxable profits have decreased because a business may have purchased equipment that has in turn reduced high profits down to lower profits.
  • The business is ceasing at the end of the tax year
  • An individual may be assessed on higher income and this income has dropped in the next year.  For example an individual may receive a high dividend in one tax year but the following year the dividend isn’t received.  In this case you do not want to be paying tax on income you are not receiving.

If you think that your income or profits may be dropping in the next year then it is worthwhile speaking to your Accountant to ensure you get the correct advice regarding the payments on account regime.

Croombs Chartered Accountants are available for a free, no obligation meeting on how we can help your business, from helping you understand the numbers to discussing ways of minimising tax liabilities

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