balancing payment self employed

[funbobby]

quick question about my charges, every year i pay an extra balancing charge in january as per norm but my question is in the last 5 years or so my income has pretty much stayed the same yet each year i still get charged anywhere in the region of 1k on top. my basic understanding is its a top up from last years accounts but how come it never seems to even out?

[Cosworth4388]

When you say your income is pretty much the same is it consistently going up a bit , I’ve been self employed 20 years now ( carpet fitter ) and balancing payments assume your going to earn the same in the next tax year .
My next set of accounts will be going into the accountant in October and I know I’ve earned more money in this tax year so I expect my balancing payment to be going up , because including what I’ve paid in July , my next set of account will show i have not paid enough , at least I think that’s how it works .

[Eric Mc]

The balancing payment is required in January if the total of the two payments on account for the tax year are less than the actual liability.

If the two Payments on Account exceed the actual liability, HMRC will either refund you the excess or offset it against the 1st Payment on Account for the following tax year.

If, part way through the tax year you realise that your self assessment tax bill is likely to be lower than the previous year (due to falling profits say, or because you have made a large contribution to your pension), HMRC allows you to request that the two Payments on Account be reduced to a more realistic level - even down to Nil if that is appropriate.

However, if you over reduce the Payments on Account amounts, HMRC will charge you interest when the correct liability is notified to them through the self assessment return.

[GSalt]

As above, if you earned the same your balancing payment should be zero, or thereabouts. Your Payments On Account are the tax due on the same income as the previous year divided by two.

You can adjust your POA if you expect a changed income, either up or down.

[funbobby]

In 25 years I’ve always paid a balance charge as income has steadily gone up but like I say last few years have been very similar yet there is always a charge ?

[clockworks]

Sorry to hijack, but is there a threshold where payments on account kick in?

I had to ring HMRC last year when I gave up a part time employment to go self-employed full time, just to make sure I got the correct sections to complete for paper self assessment. While on the phone, I asked about making payments on account (previously I'd just had a reduced tax code to cover my self-employment tax liability), and the chap said I needn't bother, just settle up by the deadline each year.

I'm a sole trader, profits growing each year, but projected to be around £15k gross in the current year. I also have a pension income of around £8k p.a.

[GSalt]

It's been a while since I set myself up for SA, but from memory you'll start the with POA after your first January SA return.