Take account of your year-end tax liabilities

Payments on account are advance payments towards your tax liability for the year, if you complete a UK Self-Assessment tax return and is a way of settling tax owed.

The two deadlines for the self-employed to pay their tax bills are 31 January and 31 July of each year.

These two payments are made during the year, calculated on the previous year’s tax bill and are designed to avoid building up debt to the taxman.

If the tax liability is greater than the previous year, a further balancing payment may also be required.

Normally this is not a problem, as you are only ever expected to make a half-payment.

However, if this is your first year filing a return then you may be required to pay tax for the year plus an additional 50 per cent of what is owed.

That can catch people out unless they have put sufficient money aside to pay the tax that they owe.

Given the challenges of the last year, many taxpayers may also find that the estimates for tax owed are inaccurate as their income has been smaller than predicted.

How do payments on account work?

Your bill for the 2019 to 2020 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2021 is £2,700. This includes:

  • Your ‘balancing payment’ of £1,200 for the 2019 to 2020 tax year (£3,000 minus £1,800)
  • The first payment on account of £1,500 (half your 2019 to 2020 tax bill) towards your 2020 to 2021 tax bill
  • You then make a second payment on account of £1,500 on 31 July 2021.

If your tax bill for the 2020 to 2021 tax year is more than £3,000 (the total of your two payments on account), you will need to make a ‘balancing payment’ by 31 January 2022.

Payments on account do not include anything you owe for capital gains or student loans (if you are self-employed) – you will pay those in your ‘balancing payment’.

You have to make a payment on account if your tax during the previous financial year was more than £1,000.

However, that is not the case if more than 80 per cent of that year’s tax was taken off at source, for example, through PAYE.

Link: Understand your Self-Assessment tax bill – payments on account

Director’s ban is a warning to others to keep proper company records

A payroll services boss has been banned for orchestrating a multi-million-pound tax avoidance scheme.

The case puts a spotlight on company owners and should serve as a reminder that they are subject to strict conditions over keeping records.

The High Court issued a disqualification order lasting 11 years to the sole director of Magnetic Push Ltd.

The company was purportedly operating as a payroll services company and entered voluntary liquidation within a year of being formed.

However, the liquidator found the director completely uncooperative when requesting the company’s statutory records.

This was reported to the Insolvency Service, which investigated and found that the company was acting as an umbrella company in part of a tax avoidance scheme.

He had declared a VAT liability of just £609 but the tax authorities claimed more than £4 million from Magnetic Push in the liquidation.

Failure to keep accounting records can lead to a £3,000 fine and/or disqualification from acting as a director, as this case indicates.

If you haven’t reviewed your record keeping in a while, now is a great opportunity to do so.

Key points for company and accounting records

You must keep:

  • Records about the company itself
  • Financial and accounting records
  • HM Revenue & Customs (HMRC) may check your records to make sure you are paying the right amount of tax.

You must also keep details of:

  • Directors, shareholders and company secretaries
  • The results of any shareholder votes and resolutions
  • Promises for the company to repay loans at a specific date
  • Promises for payments if something goes wrong and it is the company’s fault
  • Transactions when someone buys shares in the company
  • Loans or mortgages secured against the company’s assets.

Limited companies have to keep a register of ‘people with significant control’ (PSC), which must include details of anyone who:

  • Has more than 25 per cent shares or voting rights in your company
  • Can appoint or remove a majority of directors
  • Can influence or control your company or trust.

When it comes to accounting records you must be able to evidence:

  • All money received and spent by the company, including grants and payments from Coronavirus support schemes
  • Details of assets owned by the company
  • Debts the company owes or is owed
  • Stock the company owns at the end of the financial year
  • The stocktaking you used to work out the stock figure
  • All goods bought and sold
  • Who you bought and sold them to and from (unless you run a retail business).

Link: Running a limited company – Company and accounting records

Don’t miss the deadline for renewing tax credits

Unlike other benefits, tax credits usually have to be renewed each year by 31 July to continue receiving payments from HM Revenue & Customs (HMRC).

If you are claiming tax credits, it is really important to look carefully at the information you receive.

Even if you have stopped getting tax credits, you still need to check that all your details are correct and respond if required to do so.

Each year you will be sent a renewal pack that tells you how to renew. If it has a red line across the first page and says ‘reply now’ you will need to renew.

If it has a black line and says ‘check now’, you will need to check your details are correct and if they are, you do not need to do anything and your tax credits will be automatically renewed.

If you miss the deadline your tax credits payments will stop. You will be sent a statement and will have to pay back the credits you have received since 6 April 2021.

From 6 April, you will get estimated (‘provisional’) payments from HMRC until you renew. Your payments may have changed based on information from your employer or pension provider.

If you miss the deadline for renewing, you will be sent a statement (TC607). If you contact HMRC within 30 days of the date on the statement your tax credit claim may be restored, and you will not have to pay anything back.

However, if you contact HMRC later than 30 days of the date on the statement, they will ask you to explain the reasons for the delay – known as ‘good cause’ – before they consider restoring your claim.

If HMRC stops your payments, you cannot make a new claim for tax credits.

How to renew

You can renew tax credits online or renew tax credits by phone or post.

You will need:

Link: How to renew tax credits

A helping hand with the cost of children’s summer activities

Parents faced with the financial headache of childcare over the long school summer holidays are reminded they can get support from the Government.

HM Revenue & Customs (HMRC) is reminding working families that they can use Tax-Free Childcare to help pay for their childcare costs over the summer.

Tax-Free Childcare – a childcare top-up for working parents – has been available for some time.

It can be used to help pay for accredited holiday clubs, childminders or sports activities, giving parents and carers that extra peace of mind during the school summer holidays and saving them money.

The scheme is available for children aged up to 11, or 17 if the child has a disability.

For every £8 deposited into an account, families will receive an additional £2 in Government top-up, capped at £500 every three months, or £1,000 if the child is disabled.

Parents and carers can check their eligibility and register for Tax-Free Childcare on GOV.UK.

They can apply for an account at any time and start using it straight away.

By depositing money into their accounts, families can benefit from the 20 per cent top-up and use the money to pay for childcare costs when they need to, especially during the summer holidays.

More than 282,000 working families used their account in March 2021, the highest recorded number of families in any one month since the scheme was launched in April 2017. These families received a share of more than £33 million in Government top-up payments.

Tax-Free Childcare is also available for pre-school aged children attending nurseries, childminders or other childcare providers.

Families with younger children will often have higher childcare costs than families with older children, so the tax-free savings can make a difference.

Childcare providers can also sign up for a childcare provider account on GOV.UK to receive payments from parents and carers via the scheme.

Link: Tax-Free Childcare