Kirkpatrick & Hopes - Succession Planning Accountants

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Email us: mail@kirkpatrickandhopes.com

Tax payment due 31st July? How to reduce it

If you pay personal tax bills, you may well be due to pay your second ‘payment on account’ (POA) of your tax liability for the tax year to 5 April 2011.

It may be possible to avoid or reduce this payment.  Here’s how.

1. If you have done your tax return to 5 April 2011 and the actual liability is less than the previous year.

2. You do not need to make a POA at all if the tax liability on the 5 April 2010 tax return was less than £1,000, or if at least 80% of the tax due for 2009/10 was paid at source (e.g. under PAYE or tax deducted from interest paid to you by banks).

3. If you have not done your 5 April 2011 tax return but expect the liability to be less, you can ask the tax man to reduce the POAs. Be warned: if it turns out you should have paid the original amounts after all, you will have to pay interest and possibly even penalties if the tax man thinks you didn’t have a good reason to reduce the payments!

4. It is too late to make pension contributions for the year to 5 April 2011, but if you have made a loss in a business since 5 April 2011, you may be able to carry those losses back to the 2011 tax year and reduce the tax liability and payments. Note that this applies only to sole trader and partnerships (including LLPs), NOT limited companies.

Please see the notes below to find out more about the rules for payments on account. For general tax-saving tips and ideas have a look at numerous Blogs that we have archived.

If you’d like to speak to me or one of the team at K&H about this or anything else, please call 0118 923 5800 or email mail@kandh.co.uk

Notes

• The tax rules state that you must pay an estimate of your tax liability for the year to 5 April 2010. Half is payable on 31 January 2011 and the other half on 31 July 2011.

• The total amount you have to pay is equal to the actual liability for the year to 5 April 2010, although if the total liability for that year was less than £1,000, you don’t have to make any POAs.

• Once you have worked out your actual tax liability to 5 April 2011, you can get an immediate refund of any overpayment (with interest). Any balance payable over and above the POAs does not need to be paid until 31 January 2012.

• The POA applies only to income tax, not to any Capital Gains tax.

• If you have done your 5 April 2010 tax return and you are due to make a POA on 31 July 2011, you should have been sent a payment reminder with a payslip by HMRC in late June/early July.

• Payment can be made to HMRC by direct debit, direct payment by internet or phone, at your bank, Post Office or by post. Cheques should be made payable to ‘HM Revenue & Customs Only’ and you will need to know your UTR reference for the payment.  Further payment information can be found HERE

• If you pay late, you will be charged interest and (if more than 30 days late) ‘tax-geared’ penalties starting at 5% of the tax due.

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