Sort your tax in time for Christmas

Before you spend all your savings on Christmas, do you know what tax you are going to have to pay in January?

If you haven’t completed your return yet, you’re running out of time!
If you’ve already completed your tax return, then you’ll know that you need to pay:

  • The total 2016-17 liability – less payments on account already made, plus
  • The first payment on account for 2017-18.

But could this change?

Firstly you will be pleased to know that if your income in 17-18 is higher than 16-17, that does not affect your payments on account – they are not increased at all. It will mean that the January 2019 tax is high though, because the payments on account will not have been enough to cover it, and there will be new payments on account for the following year based on these higher figures.

Be aware though that if you reduce your payments on account too much, when the actual amount is known and paid, there will be an interest charge back to the original due date.

Student loan payments

Is there a student loan repayment hidden within your tax liability? If you have paid your loan off since 5th April 2016, then you can apply to have the calculated repayment ‘stood over’ so you don’t have to pay it. If you call HMRC, they can usually see, or find out, that it’s been fully repaid and take it out of the calculations.

Do you have grounds to reduce your payment on account?

Has your untaxed income reduced? For example:

  • Have you been on a career break?
  • Maternity leave?
  • Reduced or stopped locum work (and taken salaried employment)?
  • No longer receive rent – or receive a reduced amount?
  • Are your allowances higher than last year? For example:
  • Perhaps you’ve pensioned income in 17-18 but didn’t in 16-17?
  • Perhaps your total income has reduced so you can now claim a full personal allowance when it was restricted in the past?
  • Perhaps your total income has reduced so your freelance work is taxable at basic rates instead of higher rates

Where you have reasonable grounds for believing that your 17-18 tax liability will be less than 16-17, you can reduce your payments on account. Ideally you’ll calculate what you expect 17-18 figures to be and reduce the payments to that amount. Of course you won’t know in January how much more you’ll earn until 31st March, so you will need to make estimates. As long as those estimates are not totally reckless, that will be fine.

Be aware though that if you reduce your payments on account too much, when the actual amount is known and paid, there will be an interest charge back to the original due date.
Sometimes it’s best to slightly overestimate the tax due and pay a little more than you would otherwise calculate as due, then deal with your tax return promptly after 5th April so you know what the full annual amount will be before the July payment is due.

What happens if you don’t reduce payments on account and your tax liability is lower?

You’ll just get a refund of tax as soon as you submit your tax return unless you leave it very late, in which case they’ll offset the refund due against the next tax payment, and HMRC will pay ‘interest’ (called repayment supplement) on overpaid amounts.

If you have a professional adviser, they can make the reduction in payments on account on-line for you and it will be reflected in your balance outstanding within 48 hours. Occasionally, the reduction request does not get processed (and HMRC don’t tell you or the accountant about it), so you may get a payment reminder. If this happens, get your accountant to sort it for you - don’t just assume that it’s payable.

And finally, a Christmas plea from accountants everywhere...please don’t leave everything to the last minute. If you hand your tax information in in January expecting it to be completed by the deadline, it may not always be possible. Would you rather your return be completed in the summer by a healthy, well rested accountant – or in January by a flu-ridden, exhausted accountant with a very short fuse and probably at a higher cost to you? (To be fair to locums and salaried doctors, you are usually much better than consultants at getting your tax information to us in a timely manner – thank you!)

Wishing you all a nice relaxing break over the holidays, and a happy and healthy New Year.

This article was first published in the December 2017 edition of The Sessional GP magazine.

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