Q I am self-employed and have a tax payment coming up at the end of the month (31 July). My profits over the last 12 months have not been as good as the previous year and so I am going to find it really difficult to meet this payment.

Is there anything I can do?

A Self employed people pay their tax liabilities twice per year on 31 January and 31 July. When you have profits that are rising year on year you will find the January payment is generally higher than the July payment. The reason for this is that the tax payments for a particular tax year are collected in three tranches.

If we take the 2007/08 tax year you would make a “payment on account” on 31 January 2008, a second “payment on account” on 31 July 2008 and then a further “balancing payment” on 31 January 2009.

On the 31 January 2009 you would also be required to make a “payment on account” for the 2008/09 tax year which is why this payment date can be high.

The payments on account required are always 50% of the previous years total tax bill. So, if in 2006/07 your tax bill was £10,000 you would be required to make on account payments for 2007/08 of £5,000 on 31 January 2008 and 31 July 2008.

If your final tax bill for 2007/08 is calculated to be £11,000 then the additional £1,000 will be payable on 31 January 2009.

This works fine when your profits remain static from one year to the next or are rising. The problem comes when you have a poorer year and profits reduce.

In this situation the payments on account will end up being more than the final tax bill. However, whilst the tax man will make a refund to you of the over payment he will not do this until you have submitted your tax return. Clearly it could be some time until you are able to submit the tax return and so you are left with having to pay more.

This can cause hardship which is the position you find yourself in. Thankfully, there is a mechanism to request that your payments on account be reduced and this is what I suggest you look in to. The relevant form is a “SA303”. You need to be reasonably accurate on how much you request the payments be reduced by because if you over do it and it later transpires that the payments were due the tax man will charge you interest.Any reader interested in discussing this topic can telephone Graham Jennings on 01344 875000 Send your taxation and accounting queries to Graham Jennings, Kirk Rice Accountants, The Courtyard, High Street, Ascot, Berkshire, SL5 7HP or email graham.jennings@kirkrice.co.uk.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

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