Watch out for the double tax whammy…..!
What you need to know about double tax
If you are in the position where you have outstanding tax to pay on/by 1 January each year of up to £1000 perhaps because you have some untaxed rental income, there’s something you need to watch for.
Provided the amount of tax due is always below £1000 then that’s all you will be asked to pay when your tax is calculated and due for payment.
However if, one year, it turns out that the outstanding amount is over £1000 even by one penny, then you then also have to pay an equivalent amount on account for the following year. This is due half on 1 January (i.e.immediately) and half six months later on the following 1 July.
If you haven’t twigged by now, this means that in this one year you are actually paying double the usual amount. When you get through to the following January (unless your tax bill falls below £1000 again) you will have to pay an amount on account in advance again.
This means that in that one year you are really paying out tax twice, as you are being cleverly switched by Mr Taxman from paying your tax in arrears to paying in advance.
Something to watch out for then if you have rising sources of untaxed income such as rental income because as soon as you hit a year where the outstanding tax amount exceeds £1000, this will trigger the additional demand.
And it can come as a bit of a shock to the wallet.
If you think this could apply to you, there are a number of ways that the tax due could possibly be reduced down to below £1000 (such as by paying additional pension contributions) but any actions would need to be carried out by preceding 5th April – 9 months before the tax is actually due.
Talk to our tax experts
Worried about sorting out your tax, or want more advice about tax planning? Here at THP Chartered Accountants, our tax experts will be happy to help you out and advise accordingly. Simply head to any of our offices (THP Wanstead accountants, THP Cheam accountants, THP Chelmsford accountants, THP Saffron Walden accountants, THP London City accountants) or get in touch today on 0800 6520 025.