QUESTION: My accountant advised me that I should try and prepare my accounts for the tax year 2023/24 as soon as possible after the year end as I had told him my profits had reduced significantly from the 2022/23 year. He told me this could reduce the tax payment I need to make at the end of this month. Can you explain how this works?
ANSWER: Payments on account are designed to spread the tax burden by allowing you to pay your tax bill in two instalments: the first on January 31 and the second on July 31. These payments are based on your previous year’s tax bill and help you avoid a large, single tax payment at the end of the year.
If your business profits have decreased in the current tax year (2023/24), your overall tax liability will likely be lower than it was in the previous year (2022/23).
Consequently, your current Payments on Account might be higher than necessary. Reducing these payments can help manage your cash flow more effectively, ensuring that you only pay what is needed.
Getting your information to your accountant early to allow them to prepare your accounts and tax return for the tax year 2023/24 prior to July 31 2024 will enable them to calculate what your actual tax liability will be for tax year 2023/24 and therefore advise you on whether to reduce your payments on account or not.
If you are due a refund, filing your tax return early can expedite the process of receiving it. The sooner you file, the sooner HMRC can process your return and issue your refund.
This can be particularly beneficial if you are relying on that refund for significant expenses or savings goals. Early filing means you can put that money to use faster, rather than waiting until the last minute.
For those who owe taxes, early filing provides clarity on the amount due well in advance of the payment deadline. This allows for better financial planning and cash flow management. Knowing your tax liability early gives you more time to budget and save for the payment, avoiding any last-minute financial strain. It also provides the opportunity to explore payment options or seek professional advice if needed.
Finally, one of the most valuable benefits of filing your tax return early is the peace of mind it brings. Completing your tax obligations well before the deadline allows you to move forward without the looming worry of tax season hanging over you. This can lead to better productivity and a more relaxed state of mind.
If you cannot afford to pay the July 31 2024 instalment in full by the due date, then you should contact HMRC as they may agree to give you more time to pay.
- Malachy McLernon (m.mclernon@fpmaab.com) is partner at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies
