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Hi Sir
I feel not confident on how to tackle questions re reducing payment on account amount, mainly because it was not covered in the Textbook or lectures in details.
For example, below is one question I came across when I did a mock exam:
Eva’s income tax liability and class 4 NIC for the tax year 2019/20 are £4840. Her income tax liability and class 4 NIC for the tax year 2018/19 were £6360.
What is the lowest amount to which Eva could make a claim to reduce each of her payments on account for the tax year 2019/20 without being charged interest?
Why the provided the solution is: £4840/2=2420?
Thanks.
£4,840 is the actual total tax liability for the the tax year 2019/20 – if the POA were any lower then tax would be underpaid for the year and therefore interest would be payable – as there are 2 POA the lowest amount is the calculation you show above!
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Thank you. I got a bit confused with the complicated sentence structure style of the question.
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I asked it on accountingweb.co.uk. But you can can refer to the Tax tutor’s answer here too. You cannot reduce the payment on account amount for year 2018/19 to the tax year 2019/20 level, ie £4840/2 = 2410. Any amount lower will result in penalty charge as well as interest charge.
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