A common misnomer with individual tax returns is that they’re due in January. January 31st is actually the deadline for submitting your return to HMRC and paying them any monies due.
As you can imagine; most accountants are swamped in January and it’s common to have two types of conversation. The first goes along the lines of “we’ve calculated your tax return and there’s no money due to HMRC” – which usually prompts a large smile from the client and a response of “that’s good” – which of course it isn’t. Because that usually means it’s been a dire year. Paying tax is actually a good thing. It’s a sure sign that you’re earning money. Personally I’d like to be paying 50% tax. That would mean I’m earning over £150,000 a year.
The other conversation clients have when handed their tax bill usually prompts a string of expletives followed by “I can’t afford that!”. The fact is; they probably could have done, but they’re hearing this news a week before the deadline and have no time to get the funds together to cover the bill on time.
For those that are new to this; in the first year of self assessment, if your tax bill is over £1000, HMRC will ask you for a payment on account for the first half of the following year. This is because they’re expecting you to pay in January which is of course nine months after the financial year end. That means a £2000 tax bill for April 2013 – April 2014 will incur an expected payment of £3000 in the January following the first year of assessment (2015). This is followed by another of £1000 payment in July 2015, and anything outstanding for the following year (14-15) would be added to the following Januarys payment (2016).
So they are then (- and not unreasonably they would no doubt say) asking for payments on account for next year. They will have expected you to put some money aside for this in the last 6 months since the year ended.
Todays top tip is to get your return done and filed as soon as possible and not to leave it to January. Basic economics will dictate that high demand will equal higher prices, and there is indeed a high demand for accountants in January. January tends to be a lean month for most, and it’s a smart and prudent move to plan ahead and know what’s coming at you!