It’s Tuesday! Let’s talk Tax.
Read this week’s short tax snippet for Doctors & Dentists, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – take 5 minutes to have a read.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
The Financial Conduct Authority does not regulate tax advice.
Can you reduce your tax payments on account?
Last week we discussed Why Do You Have to Make Tax Payments on Account? If you didn’t read it, have a quick read now so you understand the reason behind why these additional payments are applied to your tax bill.
The January tax bill, is (typically) made up of two elements:
- Tax liability – tax based on profits to 5 April 2016.
- 1st Tax Payment on Account – tax based on estimated profits to 5 April 2017
The tax liability part will be due for payment on 31 January 2017. As the year end has passed, there is little that can be done to reduce this in any way.
However, the Payment on Account element of your January payment, is based on estimations for the year ended 5 April 2017.
The calculated Payment on Account assumes that your profits remain the same, or will be greater than the previous year. If this isn’t to be the case then there are grounds to reduce your January (and July) Payments on Account to ease your cash flow now.
Things to carefully consider
- Are your actual profits from 6 April 2016 to date, less than last year for the same period? It is essential to review up-to-date management accounts to ensure you have the full picture.
- Do you think your overall profit for the year ended 5 April 2017 will be less than the year ended 5 April 2016? Careful projection is required here.
- As there are still two and a bit months left in this tax year, are you planning any large expenses that could reduce your taxable profit for the current year? Or is income due to fall for any reason?
DO consider these questions, and if your projected tax for the 2016-2017 tax year could be significantly less than the current 2015-2016 tax year, then speak with your accountant to see if it is worth reducing your Payments on Account.
DON’T however, slow down business to make less profit, or make unnecessary purchases just on this basis.
It never pays to let the tax tail, wag the commercial dog!
ALSO, it isn’t (generally) wise to reduce payments on account if your profits are likely to be the same, or more in the 2016-2017 tax year. Interest could apply when your next tax bill is due.
Specialist accountant, Michael Lansdell, can answer any tax questions you may have regarding your 2015/2016 tax return, or the current year ended 5 April 2017.