Is your tax bill over £1,000? Typically you only have to pay your income tax bill in January each year. However, when your income tax bill is over £1,000 the tax authorities want you to pay payments on account for the next year.
In the year of transition, this becomes quite expensive. The reason being that you have to pay the tax bill that is due for the previous year and 50% of the current year tax bill as a payment on account. For example – If your tax bill in January was £1,500, the payment on account would be £750 which means the total bill payable in January would be £2,250 followed by a further £750 in the following July.
Each year in January the payments on account are reviewed against the actual calculation and the difference paid or repaid in January with a new payment on account paid in January for the following year and so on.
The best way to be prepared for this is to complete your tax return early so that you can see what payments need to be made and plan this into your personal finances.
April 1st, 2019