HMRC routinely promote the benefits of filing Self Assessment Tax Returns early, and we agree that there are many advantages to doing so. One such benefit is that it enables you to ascertain and manage your tax payments.
Self Assessment Taxpayers are obliged to make advance payments toward their current year tax bill (known as “payments on account”) unless their last tax bill was less than £1,000 or they have already paid more than 80% of their tax bill at source, for example via PAYE on their employment income.
The payments on account are two equal instalments due by 31 January and 31 July each year with each payment being 50% of their previous year’s Income Tax liability.
One main advantage of filing a return early is that your liability for the year is calculated early, which then enables you to plan your finances. Those who make payments on account will find this particularly beneficial if their liability has fallen in comparison to the previous year, for example due to a COVID-related drop in income.
If this is the case we will be able to apply to reduce the second (July) payment on account to reflect the accurate tax position and prevent an overpayment of Income Tax.
Conversely where current year payments on account have already been reduced as a result of an estimate of income, early completion of tax returns ensures any over-reduction of the payments is identified and corrected early, minimising any late payment interest charges.
If you have any concerns regarding your tax payments please get in touch with Lisa Tait, Private Client Tax Senior Manager, or with your usual AAB contact.