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Friday, 21 September, 2001, 10:31 GMT 11:31 UK
January tax deadline looms
A futuristic calendar
Missing key dates could result in fines

By John Whiting, tax partner at PricewaterhouseCoopers

If you are wrestling with completing your tax return it's all too easy to forget that you have to pay tax as well.

Most UK taxpayers will pay their tax straight from their earnings via the Pay As You Earn (PAYE) system.

But the self employed, those with rental income and many people who have involved affairs will have un-taxed income and are therefore subject to the self assessment (SA) payment calendar.

And that inevitably means confusion as to what you have to pay and when.

Dates to mark in the calendar

Under SA, payment of your income tax bill has to be made in three chunks.

For example, for the tax year 2000/01 (i.e. the year that ended 5 April 2001):

  • Half of your estimated tax bill for the total year has to be paid on 31 Jan 2001. This is known as a payment on account -- more about this later.

  • Half again of your estimated tax bill had to be paid on 31 July 2001.

  • And finally, the balance of your tax bill (or a refund if you have over-paid) is due on 31 January 2002. And of course you'll be making your first payment on account for the next tax year 2001/2002 at the same time.

    If you have any Capital Gains Tax (CGT) to pay, that is all due in one go, on 31 January.

    Payments on account

    The payments on account that you make at 31 January and 31 July are based on the previous year's tax bill - which is why they are estimates for this year.

    Let me try and clarify this with an example:

    Suppose you have a total tax bill for 1999/2000 of 20,000.

    For 2000/01, you start by assuming you have the same amount to pay, so you make two payments of 10k on each of 31 January 2001 and 31 July 2001.

    When you complete your tax return, you realise that you earned more than last year and you have a tax bill for 2000/01 of 23k.

    You owe the Revenue another 3,000, which you have to pay by 31 January 2002 - i.e. when you file your tax return.

    At the same time you will have to pay your first payment on account for 2001/02 - you should pay half of 23k, i.e. 11,500.

    Who decides

    If you're wondering who works out these tax bills, the normal rules apply: get your return in by 30 September and the tax office will do the maths, file after that date and you will have to work it out for yourself or pay someone to do it for you.

    The good thing about this is that it actually works to your advantage. If your income is going up, you get a cash flow advantage. You don't have to estimate this year's tax bill when you make your payments on account or pay more if you think you are having a good year.

    On the other hand, if your income is going down, you can reduce your payments on account.

    Just tell the Revenue when you make the payments. But don't do it without a good reason - if it transpires that you should have made the payments at the original level, you have to pay interest and possibly penalties.

    The exceptions

    If you've paid most (80% or more) of your tax at source and in any case if you only have 500 or less extra to pay, you don't have to make payments on account.

    It means that those who are filling in a return because they are higher rate taxpayers and have a bit extra to pay on their investment income won't have to make payments on account, for example.

    That raises another point. If you have a tax bill at the end of the day below 1,000, the Inland Revenue will offer to "code out" the underpayment.

    That means they'll adjust your tax code to collect the deficit through your pay packet over the next year. Which is good for your cash flow!

    But that offer only applies if you've got your return in by 30 September.

    A final point. The Revenue will helpfully send you their version of a credit card statement at intervals, including just before you are due to make a payment.

    This will show how much they think you are due to pay. The document isn't the easiest thing to understand and will take a little studying to sort out.

    Helpfully it does include a payslip - which you need if only to get your taxpayer number on it and thus make sure your payment goes to the right account and doesn't credit someone else!

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    See also:

    21 Sep 01 | Tax
    Self assessment basics
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