Payments on account to HM Revenue & Customs (HMRC) have to be made by Self Assessment (SA) taxpayers on 31 January in the year of assessment and 31 July after the year of assessment.
The payments are based on the previous year’s tax and class 4 national insurance liability after the deduction of any:
- Capital Gains Tax
- Tax deducted at source
- Underpayment transferred from PAYE
- SA Student Loan Repayments
But what happens if the payments on account are too high because of a change of circumstances?
You may be a business owner running a retail outlet whose trade has fallen because your local Council is digging up the road outside your shop and there is restricted access. You might be a builder suffering from a broken arm and unable to work, or you might just have more tax allowances to claim. What ever the reason may be, you know your profits are going to be down on the previous year and, as a result, your tax and class 4 national insurance liability is also going to be lower.
Making a claim to reduce payments on account
Either your accountant, if you have one, or yourself can make a claim to reduce the payments requested by HMRC. You can claim to reduce your payments on account at any time up to 31 January after the end of the tax year concerned.
Example – Payments on account for the 2013/14 tax year are due on 31 January 2014 and 31 July 2014. You can claim to reduce these at any time up to 31 January 2015.
How to make a claim
Online – If you are an individual registered to use SA Online, you can login to the service and reduce your payments.
In writing – Either in a letter or by using a HMRC claim form.
The claim form can be accessed here http://abytx.co/1f0tHrr
In a tax return – A claim for reduced payments can also be made in your SA tax return.
Nature of claim
Any such claim must state that your ‘belief that’:
- there will be no income tax liability for the current tax year or that any such liability will be covered by income tax deducted at source, or
- the amount due for the current year, after taking into account tax deducted at source, will be less than the amount of payments on account based on the preceding year.
The claim must include the grounds for that belief. If the claim does not give these details it has not been properly made and HMRC will reject it. HMRC has no power to reject claims properly made.
Factors to bear in mind
- Processing of a claim may result in an overpayment. HMRC will not generally repay the overpayment unless you request it.
- If the payments on account finally due are greater than the amounts paid, interest will be charged on the difference, so it is important to calculate the revised figures carefully and to exercise caution.
- A penalty is charged where a taxpayer deliberately makes an incorrect statement in connection with a claim to reduce or cancel payments on account. HMRC do not charge a penalty if you have acted in good faith and say, just got your sums wrong. The intention of the penalty is to prevent gross or persistent abuse by those taxpayers who claim large reductions year after year, without good reason. The maximum penalty is the difference between the amount that would have been paid but for the false claim and the amount of the payments on account actually made.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
- Payments on account: dates due and calculations – Day 4 of 25 days of tax tips (abbeytaxblog.co.uk)