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Under the self-assessment system, a taxpayer is required to make payments on account – advance payments towards the eventual tax and National Insurance liability – where the previous year’s self-assessment bill was £1,000 or more, unless more than 80% of the tax liability is deducted at source, for example, under PAYE.
The self-assessment return for the 2017/18 tax year was due by 31 January 2019. It is the tax liability for 2017/18 which determines whether payments on account are due for 2018/19, and where they are, the amount of those payments.
Each payment on account is 50% of the previous year’s self-assessment tax and, for the self-employed, Class 4 National Insurance liability. Class 2 National Insurance, while payable under the self-assessment system, is not taken into account in working out the payments on account.
Where they are due, payments on account must be made by 31 January in the tax year and 31 July after the end of the tax year. Any final adjustment is made by 31 January after the tax year once the self-assessment return has been made, with any balance for the year being due by that date. Where the eventual liability is less than the payments made on account, the excess is refunded or set against the following year’s payments on account. However, HMRC may hold back the repayment where tax liabilities will fall due within the next 45 days until those liabilities have been paid.
Reduce your payments on account
If you know that your tax liability for the current year is going to be less than the previous year, you can apply to reduce your payments on account. This may be the case if you have suffered a downturn in trade or lost a major customer. If this is known at the time you file your self-assessment return, you can do this at the outset before you make the first payment on account. Alternatively, it can be done later in the year, for example once the accounting period has come to an end and the profit figure is known.
An application to reduce payments on account can be made online via the personal tax account.
Holly had a self-assessment tax and Class 4 National Insurance liability of £1,800 for 2017/18. Based on this, she is liable to make payments on account of £900 for 2018/19 by 31 January 2019 and 31 July 2019.
Holly prepares accounts to 31 March each year. She prepares her accounts to 31 March 2019 in April 2019, calculating that her tax and Class 4 National Insurance liability for 2018/19 is £1,400. As a result, she applies to reduce each payment on account to £700.
As she has already paid the first payment on account of £900, she claims a refund of £200. She makes the second (reduced) payment on account of £700 by 31 July 2019.
By 31 January 2020, she must pay her Class 2 National Insurance liability for 2018/19, together with the first payment on account of £700 for 2019/20 (being 50% of her 2018/19 liability). Beware of reducing the payments on account too much as interest will be charged on any shortfall between the payments made and 50% of the actual liability.
Hundreds of businesses across the UK enjoy tax relief totalling millions of pounds thanks to the Government’s generous R&D relief scheme.
Last year nearly 40,000 claims were made for Research and Development (R&D) tax credits in the UK, almost double the amount made in the previous year.
Businesses both large and small benefited from £3.5 billion in tax relief during the same period in 2018 from the often-neglected tax credit, which helped contribute towards £24.9 billion of R&D expenditure across the nation.
However, many more businesses are potentially missing out.
Many smaller businesses can benefit from the small and medium-sized enterprise (SME) R&D relief, which is available to businesses with fewer than 500 staff or a turnover below £87 million.
This allows small businesses to deduct an extra 130 per cent of their qualifying R&D costs from their yearly profits, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction – which equates to an additional 33p for every £1 spent on R&D.
However, businesses that want to take advantage of this need to meet certain eligibility criteria.
In order for a project to be eligible for R&D relief, it must have involved a search for an advance in science and technology or tried to overcome uncertainty using a method or procedure which couldn’t be easily worked out by a professional in the field.
Larger businesses can also benefit from Research and Development Expenditure Credit, which is worth 12 per cent of a company’s qualifying R&D expenditure and is offset against a person’s tax liability or, in some circumstances, is payable in cash.
The credit is taxable at the normal Corporation Tax rate, which effectively means the benefit is worth 10p for every £1 you spend on qualifying R&D.
Naturally, the rules surrounding all types of R&D tax credits are complex and some businesses may find the criteria governing what is and is not eligible confusing.
With this in mind, it is always wise for firms to seek specialist advice, as it may be possible to obtain confirmation of the relief prior to major investment in a project.
Employers across the UK are starting April with a sudden increase in employment costs following a rise in workplace pension contributions and minimum wage costs.
The sharp increase in expenditure on staff couldn’t come at a worse time for business who are experiencing growing uncertainty over the UK and wider global economy.
Minimum contributions for workplace pensions have risen to eight per cent this month, with a minimum contribution of three per cent from employers.
The five per cent gap between minimum employer contributions and the minimum overall contributions must be made up by contributions from the employee. However, employers can increase their contribution to reduce the impact on employees, should they wish.
The minimum contribution only applies to employees earning £10,000 a year or more and percentage contributions are calculated using only the employee’s earnings between £6,136 and £50,000. This is an increase from 2018’s income threshold of £6,032 to £46,350.
Meanwhile, many employers will also see wage costs increase with the introduction of new statutory wage levels. As of 6 April 2019, employers must pay the following hourly rates for staff on the minimum or national living wage:
25 and over (national living wage) – £8.21
21 to 24 – £7.70
18 to 20 – £6.15
Under 18 – £4.35
Apprentice – £3.90
In some cases, the increase in the statutory minimum wage could push up the additional amount that employers are required to pay towards workplace pensions, meaning that employers with a large number of minimum wage workers, will be hit harder.