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Self Assessment Calculation

Discussion in 'Accounts & Finance' started by greencode, Apr 20, 2011.

  1. greencode

    greencode UKBF Regular Free Member

    Posts: 19 Likes: 0
    I've just done my 2010-11 tax return online and have got to the final summary screen but am a little confused. Here's what it says:

    Total tax, Class 4 NIC and Student loan due for 2010-11 = £5,903.28

    Plus

    First payment on account for 2011-12 = £2,951.64
    Payment due by 31 January 2012 = £8,854.92

    This amount does not take into account any 2010-11 payments on account you may have already made or tax due for earlier years.

    Second payment on account for 2011-12 will be due by 31 July 2012 = £2,951.64

    I understand that the total amount I owe is £5,903.28 but don't understand the First and Second Payment figures are.

    Any help would be very much appreciated.
  2. eccountants

    eccountants UKBF Newcomer Free Member

    Posts: 50 Likes: 20
    Hi greencode,

    I quite understand your troubles, we have to spend a little while getting the trainee's heads round this whenever they join us.

    I think the first thing that causes confusion is that you actually make three different payments, but you make two of them at the same time as follows:


    31 January 2012: balancing payment for 2010/11 and first payment on account toward 2011/12.

    31 July 2012: second payment on account toward 2011/12.


    The next thing that's worth knowing is that the first and second payments on account are exactly 50% of whatever the previous year's tax liability was, and we can see this from your example.

    Your total tax bill for 2010/11 was £5,903.28 and (unless I've misunderstood) you didn't make any payments on account last year. This means that your 'balancing payment' (mentioned above as being one of the payments due on 31 January each year). By making that payment, you bring your 'account' for 2010/11 up-to-date, and there's nothing left owing.

    Then, on top of that, HMRC want you to pay something toward next year's tax bill. They calculate this (the first payment on account) by taking 50% of last year's total liability.

    Half of £5,903.28 is £2,951.64. This is the 'first payment on account for 2011/12' and you pay it together with the balancing payment, so you need to make a total payment by 31 January 2012 of £8,854.92

    Then in July 2012 you'll need to make the second payment on account (also £2,951.64).

    HMRC are basically just collecting the tax up front, and if (in an 'ideal world scenario') your tax liability for 2011/12 was exactly the same as in 2010/11 (i.e. £5,903.28) then your two balancing payments will already have covered this liability, so you wouldn't need to make a balancing payment on 31 January 2013, and you'd only need to pay the first payment on account for the following tax year, and so on and so forth.

    Is that any clearer at all? Basically, HMRC (if your liability is more than £500) require you to make two payments on account toward the next year's liability, and any difference is 'mopped up' in the balancing payment (or sometimes a repayment).
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  3. MyAccountantOnline

    MyAccountantOnline UKBF Regular Full Member

    Posts: 9,253 Likes: 1,832
    When you are self employed you pay tax in instalments the first on account in January the second in July and a settle-up in the following January.

    If your profits will fall next year or your allowances will increase you can apply to reduce the payments on account - you can do this online.
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  4. eccountants

    eccountants UKBF Newcomer Free Member

    Posts: 50 Likes: 20
    Yes, that's a more succinct way of putting it. Brevity really isn't my strong-point!

    Just to add to that, you do need to be a little bit careful if you're going to put in a claim to reduce the payments on account, because if you reduce them and it turns out your tax bill wasn't any less than the previous year you'll get charged interest.
  5. greencode

    greencode UKBF Regular Free Member

    Posts: 19 Likes: 0
    Thanks for this - all makes perfect sense now. 2009-10 was my first tax year being self employed and I didn't have to make two payment - they just requested the whole amount at the end of Jan '11 and no further payments. That's why I was a little confused this time around. Is this something new that they have introduced recently?
  6. MyAccountantOnline

    MyAccountantOnline UKBF Regular Full Member

    Posts: 9,253 Likes: 1,832
    Thank you:D:D

    I wouldnt have replied if I'd seen your post but I think we were typing at the same time.:)
  7. MyAccountantOnline

    MyAccountantOnline UKBF Regular Full Member

    Posts: 9,253 Likes: 1,832
    No it's been that way for a while but as Eccountant mentioned it confuses many people.
    Last edited: Apr 20, 2011
  8. Jenni384

    Jenni384 UKBF Regular Full Member

    Posts: 4,812 Likes: 1,528
    If the tax you owed in the first year was under £1000 then you wouldn't have had to make payments on account. Once the tax and class4 NI you owe is more than £1000 that's when PoAs kick in :)
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  9. eccountants

    eccountants UKBF Newcomer Free Member

    Posts: 50 Likes: 20
    Sorry, I said £500 in my post which is not correct - Jenni is, of course, right with the £1,000.
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  10. Jenni384

    Jenni384 UKBF Regular Full Member

    Posts: 4,812 Likes: 1,528
    I missed you saying £500 - I just added my post because I thought the topic in general hadn't been covered! :eek::D
  11. Bobster777

    Bobster777 UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    In 2009-2010 my end of financial tax year position was 1,726.99 pounds.

    Less payment on accounts of 2,272.88. So this left me in credit of 545.89.

    So was my first payment on account 317.16 (50% of 1,726.99 minus 545.89)?

    And my second payment on account was 863.50 (50% of 1,726.99)?

    Are these two computations correct?


    This leads me to my next year, 2010-2011 when my end of financial tax year position was 3,711.44 pounds.

    Should payments on account be: 1) 1,726.99 pounds as my payments on account already paid, or 2) 863.50 plus 317.16 = 1,181.11 ?

    Input, clarification and any enlightenment appreciated, thanks

    Bobtser
  12. Anna Chandley

    Anna Chandley UKBF Regular Free Member

    Posts: 1,390 Likes: 422
    Bobster

    The payments on account already paid will be £1726.99.

    Anna
  13. Bobster777

    Bobster777 UKBF Newcomer Free Member

    Posts: 6 Likes: 0
  14. Bobster777

    Bobster777 UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Thanks for that Anna. The story continues if you may clarify.

    My 2010-2011 tax position at the end of the financial year was: 3,711.44. To arrive at my balancing payment, I deduct 1,726.99 which equals 1,984.45 plus 50% of above tax position (3,711.44) which is 1,855.72. If I have adopted the correct calculation on 31/01/2012, my first payment on account would be 3,840.17.

    A) Is this correct?

    In January 2012 (before the 31st) I calculated, my taxable position for 2011-2012, would drastically drop to around 1,835.00. So I applied to HMRC to reduce tax on accounts and instead of paying 3,840.17 (as above) I paid 2,484.45 about 35.30% less.

    Now that I have done my accounts for 2011-2012 I have discovered my projection was extremely close and off by only a few pounds.

    B) My question is now, 'what would be my payment on account for 31/07/2012?' And, how would one calculate this?

    Someone point me in the correct direction,

    Help much appreciated

    Thanks
  15. Anna Chandley

    Anna Chandley UKBF Regular Free Member

    Posts: 1,390 Likes: 422
    Not quite. The total payment due on 31/1/12 is £3840.17 but this is made up of £1984.45 balancing payment for 2010/11 and £1855.72 payment on account for 2011/12.

    The balancing payment is £3711.44 total tax charge for 2010/11 less £1726.99 payments on account.

    The total you paid on 31/1/12 was £2484.45 which comprises £1984.45 balancing payment for 2010/11 and £500 payment on account for 2011/12.

    If you estimate that your total tax charge for 2011/12 is £1835 then you should pay £1335 by 31/7/12 to avoid being charged interest.

    Anna
  16. Bobster777

    Bobster777 UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Thanks for your reply Anna, appreciated.

    How did you calculate my July payments on account that it would be 1,335.00?

    Was it a reflected percentage drop between my tax position in 2010-2011 being 3,711.44 and 1,835 in 2011-2012? Being 50.65% down

    This where i got a bit lost, can you advise, thanks


    If you estimate that your total tax charge for 2011/12 is £1835 then you should pay £1335 by 31/7/12 to avoid being charged interest
  17. Anna Chandley

    Anna Chandley UKBF Regular Free Member

    Posts: 1,390 Likes: 422
    You said that your total tax liability for 2011/12 is £1835. The amount to pay in July is the total tax payable for the year of £1835 less any payment on account paid in January 2012.

    In January 2012 you paid a total £2484.45 which was included a balancing payment of £1984.45 for 2010/11. The remaining £500 was the first payment on account for 2011/12.

    So the amount to pay in July is the total tax due for 2011/12 of £1835 less the £500 paid in January which leaves £1335 to pay in July.

    In January 2013 there would be no balancing payment to make for 2011/12 as you have already paid the whole tax due of £1835 on account. You would need to pay the first payment on account for 2012/13 in January 2013.

    There is no need to consider any kind of percentage increases or similar to calculate the payments. As long as you know the total tax due for the year and the payments already made you just deduct one from the other to work out the balance due.

    Anna
    Last edited: Jun 22, 2012
  18. Bobster777

    Bobster777 UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    OK, great. That makes sense, accounts obviously not my strong point.

    Thanks again.:)