A true tale of woe from yesterday's City AM:
I am very much a spreadsheet girl. I keep meticulous records of income and expenses, and treat deadlines as sacrosanct. Yet every year, some disaster strikes, and I am left crying on my living room floor, surrounded by invoices and receipts.
This year, I filled out the return (thank you spreadsheet), only to be confronted with the shock of a tax bill that was 50 per cent higher than I had planned — and budgeted — for.
Why? Because of HMRC's "payment on account" system. On 31 January, those filing returns are required not only to pay any tax due on the previous tax year (in this case, 2018–19), but half their projected tax bill for the current year (2019–20).
HMRC essentially looks at your total tax bill, assumes next year's will be broadly similar, and demands half of it upfront before the tax year is even over.
1. That rule has been in place since Self-Assessment started for the 1996-97 tax year. It is not a new rule.
2. If you get your return a bit earlier and the liability is less than £3,000, HMRC will collect last year's tax liability via your PAYE code for the next year and by definition there are no payments on account. Which is a pretty sweet deal - you pay the tax for the year ended 5 April 2019 in twelve instalments between April 2020 and March 2021.
You have to pay approx. half the income tax "before the tax year is even over"? So what?
3. As the writer herself says "I can, the HMRC website tells me, reduce my payment on account. But if I get it wrong and underestimate what I am likely to owe, I will be charged interest — at 3.25 per cent. (If I overestimate, HMRC will eventually return the additional tax, without interest.)"
4. Employess will have paid 10/12 of their total liability by this stage in the tax year, so the self-employed are at an advantage, not a disadvantage.
Debate Magazine
