Understanding the HMRC's Payments on Account

 

Understanding Hmrc Payments on account

Your Comprehensive Guide to Smoother Tax Management

Have you ever found yourself puzzled by HMRC's 'Payments on Account'? Allow us to demystify the process and guide you through the whys, whens, and hows of this vital part of the Self Assessment system.

The essence of Payments on Account is quite straightforward – they’re a way to help you break down the cost of your next tax bill. They rely on a simple prediction: that your income this year will be similar to last year. Thus, each payment is half of your previous year's tax bill, split into two convenient payments on January 31 and July 31.

Is your tax situation becoming more complex as your income grows? No need to worry! Our experienced team can help you navigate the complexities of your tax responsibilities and guide you towards optimal decisions.

What if this year is different?

Life isn't always predictable, and neither is your income. Significant income fluctuations, an increase in allowances, or more tax-free income, such as investments, may change your tax scenario. Fortunately, HMRC understands this. If your income takes a dip or rockets to new heights, you can request to reduce your Payments on Account. Here's a handy step-by-step guide:

  1. Access your online account (Personal tax account or Business tax account).

  2. Choose "Self Assessment account".

  3. Opt for "More Self Assessment details".

  4. Select "Reduce payments on account".

  5. Follow the on-screen instructions.

The keyword here is accuracy. Overestimating your reduction can lead to penalties. And remember, we're here to help. With us on your side, you won't need to navigate these murky waters alone.

What if you miss a payment?

We all lose track of time occasionally. If you fail to meet the January 31 and July 31 deadlines, HMRC may charge interest and penalties. It's like a late fee on a rental – the longer the delay, the higher the cost. However, fear not! HMRC is open to setting up payment plans.

The crux of the matter is: accurate predictions and prompt payments save money. That's where we come in. By leveraging our expertise, we can help you avoid the pitfalls of underpayments and late penalties.

How much should you pay?

Curious about the amount of your Payment on Account? Each instalment is usually half of your last year's tax bill. To find out, simply check your previous year's tax bill or look at HMRC's calculations when you submit your Self Assessment tax return. Alternatively, you can always log in to your HMRC online account to view your tax bill.

Let's wrap it up

All said and done, Payments on Account are essentially an estimate of what's to come, based on what's been before. If you expect significant changes in your income, remember to adjust your Payments on Account accordingly – and we're here to help you do just that.

Whether it's getting you up to speed with Payments on Account, ensuring you don't pay a penny more than you owe, or safeguarding you from penalties, we're committed to offering you the very best in tax advisory and accounting services. Our expertise is your peace of mind. Let us handle the numbers while you focus on what you do best.

Because your success is our success. Let's make tax a less taxing affair together!

For any queries related to your tax situation, do not hesitate to contact us.

Featured
Form 8960 - Net Investment income Tax

U.S. citizens living at home, U.S. expats and Green Card holders who have worldwide income above certain thresholds are required to pay additional taxes on their investment income.
Form 1120-F - Tax Return of a Foreign Corporation

Form 1120-F is used by a company set up outside of the U.S. but with U.S. source income.
Form 706-NA - United States Estate Tax Return

All you need to know about Form 706-NA. Written by one of our award-winning tax advisors to help you understand the form and how it relates to Estate Tax
Form 5471 - U.S. Persons With Foreign Corporations

U.S. citizens and residents with involvements with foreign companies are required to report those companies back to the U.S. under certain circumstances.
Form 8833 - Treaty-Based Return Position Disclosure

You can claim treaty benefits that override or modify any provision of domestic U.S. tax law - if by claiming these benefits you reduce the tax due, you must attach form 8833, Treaty-Based Return Position to your tax return.
Form 1040-X - Amended U.S. Individual Income Tax Return

If you have already filed a U.S. tax return and need to make an amendment, you use form 1040-X.

Due to the pandemic, the IRS announced a raft of tax reliefs. If you filed your 2019 tax return without claiming these extended tax benefits or recently enacted disaster tax relief, you may need to file form 1040-X to claim them.

When you file form 1040-X for a tax year, it becomes your new tax return for that year. It changes your original return to include the new information you provide.

You use the columns "Correct amount" and "Correct number or amount" to show the correct figures for the tax return.

Starting from January 2020, form 1040X was changed to form 1040-X - just in case you see both, they refer to the same tax form.
Form 1099 - External Income

1099 forms are used by taxpayers for the provision of information to the Internal Revenue Service (IRS) about the different types of income they receive apart from their usual salary during the year. This external income may include bank interest, investment dividends, or income from freelance work.
Schedule C - Profit or Loss from Business

If you have your own LLC and you are the only member, normally the LLC is treated as transparent for tax purposes and you report the LLC's income and expenses on Schedule C.

There is an exception - if you make an election on form 8832 to treat the LLC as a corporation then the income and expenses will be taxed on a corporate tax return.
Form 8621 - Shareholder of a Passive Foreign Investment Company

The most common scenario for U.S. expats is where they hold a fund (group of shares) outside the U.S., either in their investment accounts or frequently in a stocks and shares ISA. If you do hold a fund, if it is a Passive Foreign Investment Company, then you may need to complete form 8621.
Form 8858 - Foreign Branch and Foreign Disregarded Entity

The 8858 Form is used by US persons who operate a Foreign Branch (FB) or own a Foreign Disregarded Entity (FDE).

Claimable Expenses for self-employed photographers
Claimable Expenses for self-employed photographers

This guide will inform self-employed photography business owners on the different expenses that can be claimed to minimise the tax owed on their federal tax return.
Understanding Permanent Inadmissibility: Risks of Being Barred from Reentry to the U.S

Permanent inadmissibility refers to a legal status whereby an individual is forever barred from entering the United States under specific circumstances. This status significantly impacts those who may wish to visit, work, or live in the U.S. after spending time abroad or after renouncing U.S. citizenship. Understanding these conditions is crucial for anyone navigating the complexities of U.S. immigration laws.


 
alistair bambridgeComment