Do I HAVE to pay money 'on account' for the next financial year?

[happyhippydad]

Hello,

I have just completed my third tax form for my 3rd year of trading as an electrician.

The only difference this year is that rather than just being asked to pay the income tax and NI due, the form also says I have to pay money 'on account' for the following financial year, see below:

Total amount due for 2015-16 = £1961
First payment on account for 2016-17 = £907
Total to be added to self assessment account due by 31/01/2017 = £2868
second payment on account for 2016-17 will be due by 31st July = £907

My question is do I HAVE to pay this money on account for the next year?
Have I just ticked a box by accident that states I am willing to do this or is it mandatory?
Why has it happened this year and not the previous 2 years?

Many thanks.

 

[Scalloway]

It could be that your tax bill in previous years was under the point where payments on account kick in. This is now £1,000 but I seem to recall it used to be £3,000.

You don't have to pay it as you can ask for it to be reduced. However if your tax bill for the next year is more than what you have paid in advance you will be charged interest on the underpayment.

 

[happyhippydad]

Thankyou Scalloway.

That makes sense about being 'under the point where payments on account kick in' as I would have paid less than £1000 in tax on the 2 previous years.

I expect my earnings to increase again for the financial year 2016-17 so if I go ahead and pay this £1814 (2x£907) on account for that financial year BUT my earnings for that year end up meaning I should pay £3000 in tax, does that mean I would still have to pay interest on the amount underpaid by?

It seems to me that if this is the case then in every single tax return there will be some form of interest to pay (or perhaps recoup if you pay too much?) as it would be impossible to accurately guess exactly how much you will earn for the following financial year?

Many thanks.

 

[Scalloway]

If you pay the amount HMRC calculate as being due as your payment on account then no further interest will be charged if you pay on time.

 

[happyhippydad]

Thanks verymuch again Scalloway. A succinct reply and much appreciated.