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Hi there,
I am currently doing the exercises in the practice book.
Question 12 is the following:
Gareth’s tax payable for 2021/22 and 2022/23 is as follows:
Income tax: £10,000 / £12,500
Class 2 NIC: £159 / £164
Class 4 NIC: £2,000 / £2,500
Capital Gains: £1,000 / £2,000Gareth always pays the correct amount of tax on each due date.
What is the amount payable by Gareth to HMRC on 31 January 2024 in respect of the tax year 2022/23?Answer:
Income tax £12,500 – £10,000 payments on account = £2,500
Class 2 NIC = £164
Class 4 NIC = £2,500 – £2,000 payments on account = £500
Capital gains tax = £2,000Amount to pay on 31 January 2023 = £2,500 + £164 + £500 + £2,000 = £5,165
My question:
What is the logic of payments on account? I do not understand why the 2021/22 figures are being deducted from the 2022/23 ones.Thank you for your help
Best,
FilipaPayments on account:
A self employed person normally – previously – only paid their tax once a year and the Revenue found that difficult – so they introduced POA.
You basically pay for next years tax up front based on the year you are in. You pay 31 Jan and then again in July.
When you actually work out your tax bill for that year you deduct what you’ve paid up front and just pay the balance thats due.
Then you start the process all over again.
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