Reducing self assessment payments on account (updated 2022/23)

In what circumstances is reducing self assessment payments possible?

And how can transactions you’ve made in the current year help in reducing self assessment payments?

Lots of people are understandably interested in reducing self assessment payments.

Reducing self assessment payments - image of zoo
Entrance fees to public attractions such as zoos can be gift aided.

The first instalment of your Self-Assessment tax bill is due on 31 st January 2023.

The 31 st January Self-Assessment (SA) tax bill is a combination of two elements: a balancing payment (or refund) for the previous tax year plus 50% of your estimate tax bill for the current year.

By default, the estimate is equal to the whole of your tax bill for the previous year. You can override the default estimate if you think it is too high.

You can ask HMRC to reduce Self-Assessment payments on account for 2022/23 by various means.

You can request a reduction in these payments even after the date the tax is payable has passed.

Example: Adam submits his 2021/22 tax return on 25 th January 2022. His income tax bill for that year is £5,000 of which he has paid £3,000 on account.

He pays £4,500 to HMRC on 31 st January 2022. This equates to the remaining £2,000 balancing payment of tax for the 2021/22 tax year, as well as an additional 50% of estimated Income Tax liability for 2022/23 of £2,500.

In March 2022 he realises his income for 2022/23 will be lower than the previous year’s which will result in his overall tax bill being less. Adam estimates it at £3,500.

He asks HMRC to reduce his payments on account for 2022/23 to £1,750 and because he has already paid £2,500 on account, he can also ask HMRC to refund him £750. He will still however need to make a second payment on account to HMRC by 31 st July 2022.

However, if you ask HMRC to reduce your payments on account and your tax bill ends up being greater than what you pay, HMRC will charge interest on the difference between the amount paid and the lower of the original payments on account and your actual tax liability.

Carrying back tax relief

Tax relief for some types of transaction can be carried back from one year to the previous one.

These include reliefs for gift aid, enterprise and seed enterprise and social investment schemes.

Carrying back tax relief has a double effect on reducing your 31 st January SA bill. Because it reduces the tax payable for the previous year it also reduces the payments on account for the current one.

Example: Ben was a higher rate taxpayer for 2021/22. His SA tax bill for that year is £4,000 of which he has paid £2,500 on account.

His 31 st January 2022 payment is therefore £3,500. A balancing payment of £1,500 plus an additional 50% of the estimated Income Tax liability for 2022/23 of £2,000. In 2021/22 he has made gift aid payments of £1,200 (this counts as £1,500 for income tax purposes, i.e., £1,500 less basic rate tax relief of £300 which is automatically assumed to have been allowed).

Ben is entitled to higher rate tax relief of £300 on the gift aid payments (£1,500 x (40%-20%)).  He submits his 2021/22 tax return on 30 th January 2022. On it he claims the gift aid relief to be carried back to 2020/21. This reduces his 31 st January tax bill by £450, i.e., £300 off 2021/22 and £150 off the payment on account for 2022/23.

Also, entrance fees you have paid to public attractions such as zoos and National Trust membership can be gift aided.

Here are more tips on Self-Assessment. If you have any questions, get in touch.

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