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The self assessment (SA) regime sets out deadlines for the completion of tax returns and the payment of tax. The term self assessment is used because the returns (from y/e 5/4/97 onwards) require that the taxpayer compute the tax liability in addition to declaring details of income and expenses.
The Revenue will compute the tax provided that the return is filed by 31 October (2007 and earlier years 30th September) following the end of the tax year.
3 - Repayments of Tax Overpaid
5 - Claiming to Reduce Payments on Account
The deadlines for filing tax returns are:
31st of October for paper returns
31st of January for Electronic Tax Returns
Small amounts of tax due may be written off. This will usually be amounts under £5 but the Revenue has the right to collect the amount if they wish.
Where the amount due is under £3,000 (£2,000 in 2001-2011, £1,000 in 1999-2000 and earlier years) and the person is employed, the normal method of collection is through PAYE by adjusting the tax code. The taxpayer has to file the return by 31 October if this option is required. Collection through PAYE defers the payment until the start of the following tax year and the amounts are spread evenly through the year. For example, £600 tax due for the 2000-01 year. This will be collected in twelve monthly payment of £50 starting in April 2002.
Where the amount due is more than £3,000 (£2,000 in 2001-2011, £1,000 in 1999-2000 and earlier years) or the return was filed after 31 October or the person is not employed (so collection through the tax code is not possible), the tax due is collected on 31st January following the end of the fiscal year. This is the same day as the final deadline for filing the return, which means that a cheque should be sent with a return filed close to the deadline.
Small amounts of tax overpaid, under £10, will not normally be repaid. The Revenue will hold the amount on-account for set-off against future tax bills.
The taxpayer must ask for the tax to be repaid. If they do not, the Revenue will hold the amount on-account for set-off against future tax bills. The reclaim may be entered on the tax return but a later claim may be made by telephone or by writing to the tax office. The repayment can be made as a cheque or paid directly into the taxpayer's bank account. The payment may also be made to a nominee, often the taxpayer's accountant.
The PAYE (tax code) system is not used to repay tax overpaid. In fact it is possible for the taxpayer to have tax underpaid from one year being collected through the tax code and tax overpaid from a later year refunded. The Revenue will not (and probably cannot because of their computer systems) set one against the other. For example, tax underpaid of £600 from 1999-2000 to be collected through the tax code in 2001-02 but also has overpaid tax of £400 in 2000-01. The underpaid tax of £600 will still be collected through the tax code while a cheque for £400 is sent to the taxpayer.
In order to maintain cash flow, the Revenue will also collect payments on-account for the following tax year. For example, £2,000 tax underpaid in the 2000-01 year. Two payments on-account of £1,000 will be required for the year 2001-02.
The payment on-account due dates are:
31st January following the end of the tax year and;
31st July (6 months later).
Note that the first payment on-account date is the same as the payment date for tax due. To continue the example above, the taxpayer would have to pay £3,000 by 31/1/02 and £1,000 by 31/7/02
The payment on-account will be based on:
Tax due
Plus Tax already refunded
Tax due for earlier years
Less Payments already made (on-account)
If this amount is under £3,000 (£2,000 in 2001-2011, £1,000 in 1999-2000 and earlier years) and it is appropriate to do so, the tax may be collected through PAYE and there will not be any payment on-account.
Deduct any tax overpaid for earlier years and any capital gains tax due from the amount computed above.
If this amount is less than £1,000 (£500 for 2008-09 and earlier), payments on account will not be required.
Make a separate total of:
Tax deducted at source
Plus Tax due in year but included in a later year's tax code
Less Unpaid tax from an earlier year included in this year's tax code
Notional tax
If this amount is 80% or more of the amount computed above (step 2), no payments on account will be required.
Each payment on account will be half of the amount computed above (step 2).
The common questions will often relate to why there is no payment on account where the tax due is more than £1,000. The two most common explanations will be that the tax is under £2,000 (remember that the test is made after deducting any payments on account already made) and tax is being collected through PAYE or 80% or more of the tax has already been collected at source.
The payments on account are based on the income in the current year. This may not be appropriate for the next year because, for example, the taxpayer may know that his or her income will fall next year. If this is the case, a claim may be made to reduce the payments on account either to a smaller amount or to nil. Bear in mind that if the amount is reduced and the liability ultimately turns out to be higher than the reduced amount, the Revenue will charge interest on the unpaid amounts.
With IRIS a claim is made by filling in a claim to reduce (form SA303) for the next tax year. For example, if the payment on account on the 2008 return in box 10 (2007 : 18.7) is to be reduced, select the year 2009 and make a claim. This will tick box 9 (2007 : 18.6), reduce the amount shown in box 10 (2007 : 18.7) and give the reason for the reduction in the additional information box. The claim form (SA303) does not have to be sent to the Revenue in addition to the information already shown on the tax return.
As the payments on account are based on the amounts of money computed in the current tax year, the SA system does not reflect changes in circumstance, most commonly the cessation of a self-employed business. If the client's source of income has stopped, a claim must be made to reduce payments on account.
The client account, in the administration module, will automatically calculate the balancing payment due and the payments on account (box 18.7) when a final tax return is produced. (Also applies if a final electronic return is produced.) Payments may be entered on the client account and should be matched to the amounts due. These payments are then picked up at step 1 shown in the process for computing the payments on account, above. If the payments have been entered on the client account but not matched, they will not be picked up.
The client account will also pick up adjustments to the payments on account when a claim is made to reduce the payment on account.