Self Assessment 2020 - How To Reduce Your Payments On Account

Payments on Account are an often misunderstood aspect of the self assessment tax return. This payment isn't additional tax, but a payment in advance, based on what HMRC think your tax liability will be for the following year.

Time Stamps:
0:46 - What exactly are payments on account?
1:22 - Who needs to make payments on account and why?
2:32 - How does a payment on account work?
4:07 - How to legitimately reduce your payments on account

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When your self assessment return is completed and submitted, if your tax liability is over £1000 then HMRC will ask you to make what's known as a payments on account. This is 2 separate payments of 50% of your tax liability in advance. HMRC assumes you will make a similar amount next year, and so, in order to make sure they avoid debt and have better cashflow, they will ask for this payment before the tax is actually due for that tax year. The first of these payments will be made when you submit your tax return, and the second will be made 6 months after.

Now for those of you worrying about affording these payments in the light of this years events, don't worry. If you believe your tax liability for the next tax year will be significantly less than usual, you can reduce your payments on account through your self-assessment return. You can choose how much you want to reduce these payments by and provide HMRC with a description as to why you think your tax liability will be less this year. However, we recommend only doing this if you genuinely need to, as if your tax liability stays the same or increases, you may have to pay interest or in some exceptional circumstances, face a penalty.

We hope this video has helped you get to grips with how payments on account work and taken you one step closer to knowing your numbers. Let us know in the comments what other topics you'd like us to cover in the future to help you achieve financial success!

#selfassessment #paymentonaccount #selfemployed

Видео Self Assessment 2020 - How To Reduce Your Payments On Account канала Accounting and Tax Academy - by Aidhan