It may be tempting to reduce your tax burden this way, but think about it first. If it turns out that your income is about the same or even higher in the new tax year, you`ll pay the tax anyway. Keep in mind that HMRC may charge you interest if you underpay your taxes. On the other hand, if you do not reduce your down payments and your tax bill is lower, you will get a refund. You may know in advance that you will overpay on the account because your tax bill will be lower next year. For example, it could be because you`re winding up your business or because you`re past retirement age and no longer have to pay Class 4 Social Security. If this is the case, you can ask HMRC to reduce your invoice payments. Due to coronavirus (COVID-19), you may delay your second invoice payment. You won`t have to pay interest or penalties as long as you pay before January 31, 2021.

Your income can vary greatly from year to year. Whether it`s a large increase due to a dividend payment or a sharp drop due to trading losses, early production gives more time for tax planning. Instalments are payments for the following year`s income tax. The amount you have to pay for each down payment is half of your tax bill for the previous year. If your tax bill for that tax year is £1,500, you will also have to make two instalments totalling £1,500 on the following year`s bill. If you start as a self-employed person, you will be taxed more than usual in your first year. You will be billed for the entire tax year in which you just worked. And then HMRC also takes an upfront payment for the tax year you`re in. If you still have tax to pay after you make your deposit, you must make a «compensation» payment before midnight on January 31 next year.

Easy, right? Unfortunately not. Read on, as you may need to consider an «indemnity payment.» This can then affect your payment plan. You have submitted your tax return and now know your self-assessment tax bill – what you owe to the tax office! You can pay what is due using the following payment methods: Each payment is equal to half of your tax bill from the previous year. Payments are usually due before midnight on January 31 and July 31. It works on the basis that you partially make an advance payment of tax. This is to prevent you from being indebted to HMRC. In the event that the tax liability is higher than the previous year, an additional compensatory payment may also be required. (£8,000 + £5,000) – £11,500 = £1,500 compensation costs.

The first payment date is January 31 at midnight. It is before the end of the taxation year in question. It is calculated by looking at the previous year`s tax bill. The deadline for the second instalment is 31 July at midnight, after the end of the tax year concerned. Advances are due on 31 January of the tax year and on 31 July shortly after the end of the tax year. For example, on January 31, 2022 and July 31, 2022, you may be asked to make instalments on the tax you will have to pay on your income for the 2021-2022 tax year, even if that year`s tax return is not due until January 31, 2023. As a result, you will need to make payments based on this deemed future tax liability – the first installment at the same time as the initial payment – so in this example, an additional £10,000 on January 31, 2019. And the second deposit of £10,000 by July 31, 2019. The first payment is due before midnight on January 31 and will be calculated based on your tax bill from the previous year. The deadline for the second installment is July 31 at midnight. As you spread your payments throughout the year, it also helps the Consolidated Revenue Fund by ensuring they receive an initial payment by the summer. With our example; On 31 July 2018, you pay the second instalment, i.e.: You have paid a total of £10,000 as of 31 July, based on your 2016/17 tax invoice.

However, if your 2017/18 tax return is completed, you will find that your total tax bill for the 2017/18 tax year is £12,000 based on your 2018 tax return. Since the tax projection is based on your income from the previous year, you may need to balance everything you pay too much or too little. For example, if you earn £30,000 in the 2021/22 tax year, your initial payments for the 2022/23 tax year will be based on that amount. As any owner of a limited liability company knows, income can fluctuate from year to year, and it`s not always easy to predict how your business will perform over the next few months. However, if you are sure that your income will take a hit next year, you can ask HMRC to reduce your invoice payments. Simply log in to your HMRC account and click on `Reduce Payment Account` or you can make the request in writing on Form SA303. For example, if you made a deposit of £1,500 on your 2020/21 tax bill and find that you actually have to pay £1,700 when you file your tax return, you will need to make a £200 «set-off» to HMRC before 31 January 2022. Compensation fees are one way to make sure you don`t ask for too much tax relief for the cost of an asset you buy for your business. It increases the amount of profits on which you have to pay taxes. Compensation is the opposite of capital cost allowance, which reduces the amount of profit you have to pay taxes on.

You will need your unique 11-digit taxpayer reference to make a payment. Contact your accountant if you need advice or help. Be warned, don`t reduce your down payments in your tax account too much. HMRC will charge you interest and penalties for insufficient payment. Alternatively, HMRC may refund you if your payments are greater than your total tax bill. Mary, a driving instructor, bought a car for £11,500 for her business six years ago. She claimed £5,000 in capital deductions for the car over its lifetime. Mary sells the car for £8,000. This amount is higher than the depreciated value of the car (which is £6,500), so Mary will have to add a compensation fee to her profit to reflect this.

If you know your tax bill is lower, you can still file your tax return earlier – although the deadline is January 31, you can file it anytime after April 6. This allows HMRC to adjust your second payment to the account if necessary. If you know that your tax bill will be lower than last year, you can ask HM Revenue and Customs (HMRC) to reduce your down payments. You can do this online or by mail. «Installments paid» are advance payments on your tax bill (including Class 4 Social Security if you are self-employed). Invoice payments spread the cost of your tax bill over two installments during the year. It was developed as a method of paying part of your tax bill in advance and thus preventing people from getting into debt with HMRC.