I Income Tax I Self-assessment Self assessment in itself it relatively straightforward. For each tax year three main payments are usually made – there are two payments on account which each equal half of the previous year’s liability to income tax and class four national insurance and then a balancing payment if the current year’s tax liability turns out to be larger than the previous year’s. If it doesn’t, there’ll either be a reduction in the second payment on account or a repayment from HMRC depending on how quickly the tax payer completes their self-assessment form. However if, like me, you struggle to get your head around which payment is due at which date in which tax year then hopefully the timeline that follows will help. This presentation is accompanied by audio – please ensure you have your sound on. Press enter to move through the presentation.

I Income Tax I Payments on Account 31st Jan 31st Jul 31st Jan 5th April The first payment on account is paid on 31st January during the tax year you are paying the tax for. Here we have a timeline that starts on the 31st of January of the current tax year. That’s because the first payment on account is due on the 31st of January of the tax year to which it relates. An exam question is likely to ask you when payments on account are due for a given tax year. The way I remember this is that it is the 31st of January at the end of the tax year – so, if the tax year is 2016/17 then it is the 31st of January 2017 I need to put down as my answer. The second payment on account is then due six months later. The final, balancing payment, is due a further six months down the line. So, thinking about the tax year 2016/17, what dates are the second payment on account and balancing payment due? Pause the slideshow if you want to take a minute to reflect on your answer. 2

I Income Tax I Payments on Account 31st Jan 17 31st Jul 17 31st Jan 18 5th April Tax Year 16/17 Tax Year 17/18 As you can see from this timeline the second payment on account is due on 31st of July 2017 and any balancing payment on the 31st of January 2018. The other thing to be aware of regarding self assessment is what each payment represents. So, the first payment on account is based on half of the income tax and class 4 national insurance contributions that the individual was liable to in the previous tax year. The second payment on account is based on the same. The final, balancing payment, reflects the difference between the two. So, if someone has earned more profit this tax year than the last, they will owe HMRC additional money and this is collected in the balancing payment. Alternatively, if profits have fallen, they may be due a repayment. Remember that Class 2 national insurance contributions are now collected via self assessment at the same time as the balancing payment. Similarly, any CGT liability is also due at this time. 31st Jan 17 payment (for tax year 16/17) based on ½ of tax/ Class 4 NIC bill for previous tax year – 15/16 31st July 17 payment (for tax year 16/17) based on ½ of tax/ Class 4 NIC bill for previous tax year – 15/16 31st Jan 18 payment balancing (square up) payment for 16/17 tax year plus Class 2 NIC 3

I Income Tax I Payments on Account Let’s have a go at an example. In the tax year 2015/16 self-employed tiler George paid tax and Class 4 NICs of £12,000. In 2016/17 his liability rose to £15,000. State what payments George will have to pay in relation to his 2016/17 earnings, how much will need to be paid and when these payments will be due. Let’s have a go at an example. In the tax year 2015/16 self-employed tiler George paid tax and Class 4 NICs of £12,000. In 2016/17 his liability rose to £15,000. Your task is to state what payments George will have to make in relation to his 2016/17 earnings, how much will need to be paid and when these payments will be due. Again, if you want to have a go at working this out – pause the slideshow. 4

I Income Tax I Payments on Account - example 31st Jan 17 31st Jul 17 31st Jan 18 5th April Tax Year 16/17 Tax Year 17/18 £6,000 £6,000 £3,000 £145.60 Plus Class 2 NICs 16/17 Tax/Class 4 NIC bill 15/16 was £12,000 31st Jan 17 payment (for tax year 16/17) based on ½ of tax/Class 4 NIC bill for previous tax year 31st July 17 payment (for tax year 16/17) based on ½ of tax/Class 4 NIC bill for previous tax year George’s bill for 2015/16 was £12,000 so half of that amount is payable on the 31st of January at the end of the current tax year – so that’s £6,000 on the 31st of January 2017. The same is due again six months later – that’s £6,000 on the 31st of July 2017. A balancing payment now needs to be made. George has paid £12,000 in total but owes £15,000. His balancing payment is therefore £3,000. This needs to be paid on the 31st of January 2018. In addition he needs to pay his Class 2 national insurance contributions of £145.60. Tax Bill 16/17 now finalised and is £15,000 31st Jan 18 payment ‘square up’ payment for 16/17 tax year 31st Jan 18 Class 2 NICs also payable 5

I Income Tax I Self-assessment That brings is to the end of this short clip on self-assessment. I trust you’ve found it useful – thank you for listening.