New to business? Beware of payments on account!

14th November 2017

 

When setting up in business you will be fully aware that you will have tax to pay on your profits, and you will ideally be putting money aside to cover this. What you might not be aware of is that you may have to pay two years’ worth of tax in just six months.

 

The first time your tax liability exceeds £1,000, assuming that 80% or more of your tax liability isn’t collected at source (i.e. deducted from a salary), you will be required to make payments on account for the following year’s tax liability.

 

Although the payments on account are deducted from your liability in the following year, meaning the overall tax you pay remains the same, payments on account can cause significant cash flow issues the first time you are due to pay them. The easiest way to demonstrate this is by way of an example:

 

Example                                                                              POA’s due                           POA’s not due

2016/17 Tax liability                                                       £1,100                                   £900

1st POA for 17/18 (50% of 16/17 liability)                    £550                                      N/A

Total due 31st January 2018                                          £1,650                                   £900

2nd POA due 31st July 2018                                            £550                                       N/A

 

As you will see, although there is only a £200 difference in tax liability in the above examples, the example in which payments on account are due will pay a total of £2,200 between 31st January 2018 and 31st July 2018 compared to just £900 for the example where they are not due – a difference of £1,300!

 

The above situation could also affect you if you operate through a limited company and take dividends from the company which push your tax liability over £1,000 for the first time.



 
Other items in Blogs
 
Julie Quayle
20th November 2017 Latest Update – Auto Enrolment Changes

View our latest information bulletin regarding Auto Enrolment including details on Contribution Phasing, What to pay and information on complying with the Pensions Regulator. Download Latest Auto Enrolment Leaflet For further information and guidance you can contact your usual Whiting and Partners representative or speak to our payroll department on 01353 662595 or by email…

Read More »

Scott Bishop
17th November 2017 VAT registration threshold reduction ahead?

Last week the Office for Tax Simplification delivered a report on VAT to the government, which among other things, covered the potential impact of reducing the VAT registration threshold. The report recommended that the Chancellor should “examine the current approach to the level and design of the VAT registration threshold, with a view to setting…

Read More »

Scott Bishop
14th November 2017 New to business? Beware of payments on account!

  When setting up in business you will be fully aware that you will have tax to pay on your profits, and you will ideally be putting money aside to cover this. What you might not be aware of is that you may have to pay two years’ worth of tax in just six months.…

Read More »

Vanessa Pearson
10th November 2017 Changes to Large Company Research & Development relief

  The Research and Development Expenditure Credit (RDEC) has now replaced the large company R&D scheme. This credit is mandatory for accounting periods ended 31 March 2017, and we are now seeing the implications of claiming the new relief. The credit applies to large companies, and SME’s who claim under the large company scheme, for…

Read More »

Catherine Hubbard
10th November 2017 Reminder for all companies ahead of MTD

  The MTD machine is moving along and the starting date of April 2019 draws ever closer and closer.  We have been working with our clients to ensure that those VAT registered (in particular) with a turnover over the VAT threshold are implementing any changes required sooner rather than later so that any teething problems can…

Read More »

Richard Alecock
1st November 2017 HMRC no longer accepting credit card payments – January 2018

  HMRC have advised that from 13 January 2018, they will no longer be accepting payments from personal credit cards. HMRC have accepted credit card payments from individuals, but from 13 January 2018, this method of payment will no longer be available. A change in EU law, prohibits merchants (including HMRC) from recharging credit card…

Read More »