Thousands could be eligible to pay reduced July tax bill

19th July 2016

Thousands of people who put more into their pension during 2015/16 than they did in the previous tax year could be eligible to claim tax relief on their contribution through the self-assessment tax system.

This is particularly relevant just now with the second payment on account for the 2015/16 tax year due on 31 July.

Given the so-called ‘bonus’ pension allowance, which was available for 2015/16, coupled with the impending cut in the annual pension allowance for high earners, thousands of people put more into their pension pot than they did the previous year, often using up unused relief brought forward as well as the current year’s allowances.

Smith & Williamson national tax partner Tiny Weeks says: “Typically, the July tax payment is based on your previous year’s self-assessment tax bill and so half of the previous year’s tax payment should normally be made by 31 July as your payment on account. However, if you are one of the thousands of people who made a larger pension contribution in 2015/16 than you did in 2014/15, then you may be able to reduce your July tax payment.”

“So, if you put in, say, an extra £10,000 (£8,000 payment with £2,000 basic rate tax credit) and you pay tax at 40%, you could be eligible for £2,000 tax relief on that pension contribution. This could potentially cut your tax bill for 2015/16 by that amount.”

“Your total tax bill for 2015/16 will of course depend on your total income, from all sources, less any deductions and allowances. So if you are self-employed, for example, and earned less in 2015/16 than you did the previous year, you may also be eligible to make a reduced July tax payment.”

“If you are thinking of reducing your payments on account, do, however, watch out for other items that might increase the total amount due to HMRC. In addition to increased profits and new sources of income, these might include:

“If you reduce the payments too much you could be subject to a penalty. Don’t worry if you miss reducing the payments, as you will get the benefit later. It should come out in the wash when you send in your tax return, often by HMRC effectively reducing your first payment due in January 2017 for the 2016/17 tax year.”

How to reduce the 31 July tax payment on account

If you think your income tax and Class 2 and 4 NIC bill should be lower in 2015/16, than for 2014/15, you should contact HMRC without delay to claim reduced payments on account. Doing this before 31 July can reduce your July payment on account to less than half the full anticipated amount required as there could be an overpayment from the first payment on account made at the end of January. Either:

 

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