| "body"> | | | | I Heard Something About 'Payments On Account - |
| The government says that 'tax doesn't have to be | | | | What Are They? When you work out the tax you |
| taxing.' They say it a lot, actually. But for most people it | | | | owe, as well as paying your liability, you have to start |
| does remain a complete mystery. If you're starting out, | | | | paying in advance towards the following year. |
| one of the big questions you're going to have is 'how | | | | For example, if your tax liability is £5,000, then as |
| do I pay tax on this?' | | | | well as paying this, you have to make two payments |
| The real big question, of course, is 'how do I avoid | | | | on account of £2,500 each. The first payment |
| paying tax on this?' For now, let's just tackle the | | | | on account is due along with the tax return, by 31st |
| question of how self-assessment is going to work for | | | | January. The second payment on account is due by |
| you. | | | | the 31st July, six months later. |
| The tax year The tax year in the UK runs from 6 April | | | | In time, this all works out nicely, because come the |
| to 5 April. Thus the 2005/2006 tax year starts on 6 | | | | next tax year, if your tax liability is £5,000 again, |
| April 2005 and ends on 5 April 2006. | | | | then you've already paid this with your two payments |
| The Tax Return | | | | on account, and you just have to go on paying your |
| If you're self-employed, you have to submit a tax | | | | £2,500 payments on account in January and |
| return that covers your earning activities during the tax | | | | July. |
| year. If you have a job, you'll enter the employment | | | | Payments on account can be reduced if you think |
| information seen on your P60. You'll also enter bank | | | | your tax situation will change in the coming year, but if |
| interest or dividends you've received, and details of | | | | you end up underestimating them, you could end up |
| any self-employment income. You'll also enter pension | | | | paying interest on them. There are also 2 situations |
| contributions you've made, along with any charitable | | | | when payments on account don't apply: |
| contributions. This isn't an exhaustive list, but you get | | | | - If your year-end liability is under £500 |
| the idea. | | | | - If more than 80% of your tax liability was covered by |
| Then, you work out how much tax you have to pay | | | | tax deducted at source (e.g. PAYE, tax on bank |
| (or, if you submit the return by September, the | | | | interest) or by dividend credits (a whole different story, |
| Revenue will do it for you). | | | | which we won't cover now). So, to give you an |
| From this amount, you take off any tax that you've | | | | example: Malcolm starts self-employment alongside his |
| already paid. For example, the tax you've already had | | | | normal job on 6 April 2006. When he comes to work |
| deducted from your salary through PAYE on a | | | | on his 2006/2007 tax return, he has a total tax liability |
| monthly basis, or the tax that's already been deducted | | | | of £10,000. £7,000 of this was collected |
| on any bank interest you're received. | | | | through PAYE, and the other £3,000 relates to |
| The tax return, and any tax outstanding, is due in by | | | | his self-employment. On 31st January 2008 Malcolm is |
| the 31st January following the end of the tax year - so, | | | | going to have to hand over: |
| for example, the 2005/2006 tax year ends on 5 April | | | | - £3000 (the tax he owes that has not already |
| 206, and the tax return is due in by 31st January 2007. | | | | been collected) |
| If you're late, you'll automatically get saddled with a | | | | - £1,500 payment on account (because he |
| £100 fine. As well as posting your tax return in, | | | | doesn't meet the criteria for not paying it) This is a big |
| you can submit it online, or hand it in to your local tax | | | | hit, and it helps (slightly) if you know in advance that it's |
| office. Whatever you do, keep a photocopy or printout | | | | going to happen. Come July, he's going to have to pay |
| of what you submit. | | | | another £1,500. |