It may only seem like yesterday that we welcomed in 2022 and your tax return may seem like it is many, many months away. However, you can bring or submit your information across to us as soon as the tax year ends on the 5th April 2022.
Now you know that you can, why should you?
The answer to this is surprisingly simple – it gives you more time to prepare to pay your tax bill. Even after preparation and submission you do not have to pay your tax bill until the 31st January 2023!
This time to prepare can be especially important for those completing their first year of self-employment or they have become more profitable. If you have a tax liability of over £1,000 for the tax year then you will need to make payments on account.
What is a payment on account?
It is the way that the government look to split down the self assessment payments if you have a tax liability of over £1,000 per tax year. There are two payments which need to be made before midnight on the 31st January and 31st July of each year to prepay your expected tax bill for the following tax year. For those with a tax liability of over £1,000 for the first time it can result in a much higher payment on the first payment than they expected.
Susan is a self employed social media specialist, she went self employed in May 2021. Her first tax return will be for April 2021- April 2022.
After calculation the total tax that she owes for this year equals £4,000 for the 2021/22 tax year. Her expected payments will be:
31st January 2022 – £4,000 for her 2021/22 return plus £2,000 pre-payment for 2022/23 = £6,000 total
31st July 2022 – £2,000 pre-payment for 2022/23
Her 2022/23 tax return gave liability to a £5,000 tax liability therefore:
31st January – £5,000 less payments already made of 2 x £2,000 = £1,000 balancing payment for 2022/23 tax return plus £2,500 pre-payment for 2023/24 = £3,500 total
As you can see the initial payment for the first year where the payments on account are due is the largest payment as you are paying a full year’s tax plus 50% extra.
What if I do not want to make payments on account?
If you have had a one off year with significantly higher levels of profit that you would normally expect you can fill in a simple form to let HMRC know.
If you really wanted to get ahead of the game you could schedule a call for next week where we can look to see what tax savings may be appropriate for you to expect before April.