Are you self-employed? If you are, or if you are someone who doesn’t pay all their tax at source, you may need to make your second payment on account for 2016-17, due date for payment is 31 July 2017.
This second payment on account will have been based on 50% of your combined Self Assessment tax and Class 4 NIC liability for 2015-16. Which raises an interesting question.
What if your estimated Self Assessment liability for 2016-17 is higher or lower than the liability for 2015-16? From a cash flow perspective, the outcome is win-win in both cases. Let’s consider the two options in more detail from the self-employed viewpoint (who are the most likely to be affected):
2016-17 liability is expected to be higher than 2015-16
In this case your taxable profits will have increased, year on year, and after your January and July 2017 payments on account have been deducted, there will be a balance owing to HMRC. At present there is no legal requirement to add this underpayment to your July 2017 payment, in fact HMRC will not ask for any balance owed until 31 January 2018.
2016-17 liability is expected to be lower than 2015-16
In this case your taxable profits will have reduced, year on year, and if you make your January and July 2017 payments on account (based on the 2015-16 results) you will have overpaid HMRC. Again, there is no legal requirement to change your July 2017 payment, and HMRC would no doubt be happy to make use of your overpayment until they would be required to offer a possible refund on 31 January 2018.
However, if you find yourself in this position, you can make a formal application to reduce your 31 July 2017 payment.
Our advice, if you have a realistic expectation that your accounts on which your 2016-17 liability will be based (usually the accounts ending in the tax year to 5 April 2017) are lower than the previous year, then we should calculate the effect on your Self Assessment liabilities for 2016-17 and lodge a formal request to reduce your July 2017 payment on account, if appropriate.