Payment on account

[Acid]

Hi

Need your help,

When we calculate the income tax liability for 2006/07 we take the income of the previous year i.e. 2006/05. So the income tax liablity for 2006/07 would be calculated on 5 April 2007 and by this date the income tax payment of previous year would be already paid in half i.e. By 31 January 2007.

But why do we assume when calculating the Balance of payment for 2006/07 that the entire income tax liabilty for 2005/06 has been already paid while infact its only half paid?


Thanks

Acid

[Alice]

Hi,

I will get back to you after some time.

[Alice]

Tax due for self-assessment is payable as follows in 3 parts:

1. A first payment on account is due on 31 January in the tax year to which the self-assessment relates.

2. A second payment on account is due on the following 31 July.

3. A final balancing payment is due on 31 January following the end of tax year to which it relates.



Payment-------------------------------Due date

1st payment on account-------------------------31 January in the tax year

2nd payment on account------------------------31 July following the tax year

Final payment to settle the remaining liability------31 January following the tax year

So in your example, payment of self-assessment tax for tax year 2005/06 (previous year in your example is due as follows:

1. First payment on account is due on 31 January 2006 (this date falls in the tax year 2005/06).

2. Second payment on account is due on 31 July 2006 (31 July following the tax year 2005/06).

3. Final payment to settle remaining liability (if any) is due on 31 January 2007 (31 January following the tax year 2005/06).

This shows that as on 5 April 2007, entire 2005/06 tax liability would have been paid.

Hope this helps.

Thanks