Self Assessment pre-payment - WTAF???

[davek_964]

I've just completed my self assessment tax return - needed because I rent out a property. i have been sticking 40% of the rent in an account anyway, so wasn't expecting any nasty surprises. But I still got one:

For 23/24, you owe us £x (by Jan 25) - this I expected.

But for 24/25, you also owe us half of £x in advance (also due by Jan), and you need to pay the other half by June 25.

I did self assessments a few years back and didn't have to do this. Not happy.

I assume that when I do the tax return next year, I'll either end up owing them a small amount since they will have made me pay them the predicted amount a few months after the tax year starts, or they'll owe me.

But basically - within a couple of months of a new financial year you've had to pay the expected tax on money you've not received yet!

Edited by davek_964 on Sunday 5th May 14:13

[djc206]

You can elect to not pay it.

Go back into the self assessment and head to the section titled “reduce payments on account”.

[Panamax]

davek_964 said:

you also owe us half of £x in advance

HMRC would argue it's not payment in advance, it's simply less in arrears than previously. If you're no longer receiving the relevant income, or receiving less of it, you can reduce the payments on account.

They've also moved CGT on property sales onto what's essentially a real time basis as opposed to giving people up to 20 months to pay.

[Eric Mc]

The Payments on Account are made part way through the tax year to which they relate- so they are not “in advance”.

If you think or know that the actual tax liability is going to be lower than the Payments on Account are indicating, you can elect to have the Payments on Account reduced to a more realistic level - including Nil, if appropriate.

[Simpo Two]

This was a massive tax-take scheme by Blair's government. When I first went self-employed in the 90s you paid tax about a year, maybe more, after you earned it. Then in a few short years it went from being tax on income you'd earned a year before, to tax on income you hadn't even had. A nice double-take, literally.

[davek_964]

Ok, true - not actually in advance. But a damn site earlier than the last time I did a tax return.

By next year I suppose it doesn't make much difference. But for my first tax return it's an unpleasant surprise since I now need to pay 50% more than I was expecting.

[Rufus Stone]

I think it depends on what you owe. Under £1000 and its January in arrears, over £1000 and its 50% in January and July on account and any balance in January in arrears.

[Rufus Stone]

djc206 said:

You can elect to not pay it.

Go back into the self assessment and head to the section titled “reduce payments on account”.

If you do this and it turns out you should have paid on account I think HMRC charge late payment interest.

[Eric Mc]

Simpo Two said:

This was a massive tax-take scheme by Blair's government. When I first went self-employed in the 90s you paid tax about a year, maybe more, after you earned it. Then in a few short years it went from being tax on income you'd earned a year before, to tax on income you hadn't even had. A nice double-take, literally.

Nothing to do with Blair. The legislation creating the Self Assessment system, including the Payment on Account aspect, was passed by parliament in 1992/93 although it took a few years for it to be implemented as various transitional arrangements had to be made.
The first tax year where it applied in full was tax year 1995/96.
Blair’s government came into power in 1997.

[Eric Mc]

Rufus Stone said:

If you do this and it turns out you should have paid on account I think HMRC charge late payment interest.

They do. If you apply to reduce the payments below the eventual correct liability, HMRC will charge interest.
However, reducing Payments on Account is something that should be considered if it is appropriate. I do it for my clients very often.

[Simpo Two]

Eric Mc said:

The first tax year where it applied in full was tax year 1995/96.
Blair’s government came into power in 1997.

Fair enough; I worked it out thinking it happened after 1997. I'm happy to blame John 'these peas are nice dear' Major instead.

[davek_964]

Odd. The first house I rented out was from about 1993 to around 2013, and in all that time I carried out self assessment and was never asked to pay this way.

[trickywoo]

Is there another threshold for on account payments besides the £1000 where it is ‘mandatory’?

I recall hearing if you go over £3k? They ask for even more on account.