Are you ready to make your second down payment?

QUESTION: I know my second personal tax installment was due July 31 (yesterday) for the 2021/22 tax year. In January, my accountant informed me of my payment for the end of July, but suggested that I reduce the payment if my company’s profits were down from last year. What are the implications if I don’t pay the full amount due?

ANSWER: If you earn anything outside of PAYE, you may need to make two installments each year with respect to your personal tax situation. The first of these is slated for January 31 – and it’s the one people tend to remember. After all, at this point in the year, you think more about taxation when you submit your self-assessment. In the summer, however, tax can seem like a distant memory – which is why many people forget about their second installment due in July.

Installments represent 50% of an individual’s net tax payable for the previous year and are used to ‘prepay’ the tax due for the relevant tax year. These payments must be made on January 31 and July 31 of each year. All individuals are required to make these payments unless their net tax payable is less than £1000 or 80% of the tax due for the tax year has been deducted at source.

If your taxable income and subsequent tax liability for the 2021/2022 tax year is likely to be significantly lower than in 2020/2021, you can apply to reduce your installments. The amount by which you reduce your payments should reflect your estimate of your tax liability for the 2021/22 tax year, which is due by January 31, 2023.

However, if it turns out later that you have reduced the installments too much, you will be liable for interest on the difference between the sums paid as installments and the amount actually due. Similarly, if you underestimated the drop and paid too much, you will be reimbursed and will benefit from additional interest.

Providing your information to your accountant early to allow him to prepare your accounts and your tax return for the 2021/22 tax year before July 31, 2022 will allow him to calculate what your actual tax will be to pay for the tax year 2021/22. tax 2021/22 and therefore to advise you on whether or not to reduce your installments.

Filing your tax return early (before the January deadline) means you should receive any tax refunds you may be owed soon after submission. In cases where you think you may have overpaid tax, be sure to file your return as quickly and as soon as possible. This will help you get your refund faster. Filing your tax return results in a tax liability calculation and shows you the total tax bill you owe to HMRC. In that sense, doing it earlier means you can plan ahead and give yourself more time to put money aside for payment. This then allows you to better manage your cash flow and finances.

If you cannot afford to pay the deposit in full by 31 July 2022 by the due date you should contact HMRC as they may be able to give you more time to pay.

:: Feargal McCormack ([email protected]) is a partner at FPM Accountants (www.fpmaab.com). Advice in this column is specific to the facts surrounding the question being asked. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss resulting from reliance on the answers.


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Elaine R. Knight