Our top 5 tips to understanding your tax bill
When HMRC send out information about your tax payments it can be very confusing, so we have prepared our top 5 tips to understanding your tax bill.
For example, it’s not easy to tell whether you’ve been sent a statement (information only) or a request for payment (a bill). More difficult still is knowing where all the figures have come from in the first place.
The confusion often leads to wrong amounts being paid, which in turn can create interest charges for underpayments, or months trying to recover tax overpaid.
Feedback from our clients backs this up and two of the questions we get asked most often are:
- How do tax payments work under self assessment? and
- What are “payments on account”?
At Finton Doyle we’ve come up with a new way of presenting this crucial information for our clients, which we’re going to start using in the new tax year. We hope that the new stripped-down, jargon-free tax return summary will be useful to our clients, but we’d love your feedback.
This is how our new summary will look:
Self-Assessment Tax Return Summary
Year Ending 5th April 2021
|Your total income for the year was||£58,784.00|
|Your total tax bill* for the year is||£5,517.30|
|The payments on account** you have already made are||£2,044.42|
|Your first payment on account** for next tax year is||£2,758.65|
|Your payment due on 31 January 2022 is |
(this includes the payment on account of £2,758.65)
|Your second payment on account for next tax year is|
(this is payable by 31 July 2022)
*This is the tax you owe from your self assessment, after any tax deducted at source has been accounted for. An example of this would be PAYE deducted from employment income. This is because self assessment includes all your income from all sources, even if tax has already been paid on that income.
** A payment on account is a payment made in advance. It is based on 50% of your tax liability for the year. Payments on account are required if your overall bill for the year is £1,000 or more. There is one payment due on 31 January and a second on 31 July.
The payments on account made in the year are deducted from your final January bill. Any remaining tax owed is then paid along with your first instalment for next tax year. If you have paid too much then the balance is deducted from the first instalment.
Other important points to remember when it comes to understanding your tax bill are:
- If you or your partner receive Child Benefit and one of you earns more that £50,000, then some or all of the child benefit will need to be repaid. This is irrespective of who actually received the payments;
- Student loans can impact on your self assessment bill – even if you’ve made repayments through your employment it’s probable that further payments will be due if you had additional income in the year;
- Payments on account don’t need to be made if the tax you pay at source is more than 80% of your overall bill;
- If you pay tax at the higher rate, your tax bill could be reduced by making contributions to a personal pension plan, or donations to charity under Gift Aid;
- Capital gains tax (charged when you sell an investment for a profit, such as shares or a property) is also collected through self assessment, so any gains need to be included on the return.
Finally, it should be noted that HMRC often make adjustments to PAYE tax codes, which can have a knock-on effect on your self assessment. It’s important to keep copies of tax coding notices because the information will be needed when you complete your return.
Have you considered a financial health check?
At Finton Doyle we like to think of ourselves as your ‘financial GP’.
Now we’re taking that one step further by offering you an annual Financial Health Check to make sure your business and personal finances are in the best shape possible. Find out more here.