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.
Why is tax required in advance in January and July?
It’s understandable why most tax payers are confused, and frustrated, with the UK tax system whereby you are made to pay tax payments in advance. These are the so-called tax “payments on account”.
However, when you strip away the layers, there is a logical reason why the tax system operates in this way.
It is not to say it will make you more willing to part with an additional 50 percent of your tax bill, come 31 January, or again on July 31.
Although, knowledge is the key to at least being prepared to tow the line.
Up to 22 month window between earnings and tax payment
The reason why HMRC operate their “payments on account” system is that there can be up to 22 months between when you earn income and when tax is paid across.
For example: Income earned on 6 April 2015 is part of the 15/16 tax return, which is now due for filing, and payment by 31 January 2017. This means 22 months difference between when you earn the money and when the tax is paid.
This is relevant for dividend income, rental income from property, self-employed income, locum income, or indeed any other untaxed income.
It is only PAYE income that is taxed in the month that it is earned, the rest is taxed via self-assessment, meaning there is typically a significant delay between when you see your money and when HMRC see theirs.
So, whilst this may not soften the blow, it may explain the logic.
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.
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