Introduction
Payments on Account can easily be confused with the advance payments, which you make as a part of your tax bills. HMRC runs and manages a system which is known as “Payments on Account” for professional individuals who pay their taxes through self-assessment.
What are Payments on Account (POA)?
There are several debates over the way concept works amongst people who are still not able to precisely comprehend one of the most fundamental elements of the Self-Assessment process. Essentially, Payments on Account`s been introduced by HMRC to help sole-traders to spread their tax payments throughout the year to make life easier for themselves. However, it became an obstruction for those who struggle with clearing their bills off by causing extra financial burdens.
Application
Payments on Account are not applicable if at least 80% of your income has already been taxed through PAYE or any other deductions. Payments on Account shall also not be calculated if the last self-assessment tax bill was less than £1,000. As the concept is designed to make you pay your tax bill partially in advance, there is a difference between the tax amount payable and the amount expected. The first installment is due on 31st January and the second installment is due on 31st July.
The first installment of the Payments on Account is usually around 50% of the last tax bill. The system also includes Class 4 National Insurance Contributions but does not include the repayment of student loans or Capital Gains Tax.
Reducing the Payments on Account
The applicable figure of Payments on Account primarily depends on how much the previous tax bill is, as HMRC is already convinced that your business will continue to grow substantially at the previous year’s rate.
It is a real-life scenario in which your income may drastically change over the years and, hence the applicable taxes will also be as part of your generated income. If you expect your next year’s income will be relatively lower, then you may apply to subdue the Payments on Account. Our expert accountants can assist you in doing this.
Unfortunately, the vast majority of professional individuals often face difficulties in paying their tax bills as they prefer to decrease the Payments on Account. People also favor using this option when they are confident about being better off financially in the future.
Underpaying the Taxes
You can always keep Payments on Account options open to use, but you should also be aware of the consequences that may follow for any underpaid tax. The prospective issues are almost always in relation to the interest rates, which may increase as a result of underpaying.
Let us deal with your Self-Assessment
We at Online Account Filing have a dedicated team of experts who are fully trained to handle your entire Self-Assessment process on your behalf.
Your exclusively assigned account manager will assist in managing your accounts and is primarily responsible for delivering an unmatched service by laser-focusing on your self-assessment process.
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