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Over the years the UK tax system has come in for much criticism on the grounds that it is too complex.  The legislation which governs our tax system is said to be more complicated and lengthier than that of many of the developed countries, and in an effort to try and simplify it, the Office of Tax Simplification (OTS) was set up.

The OTS gives independent advice to the Government on how to simplify the UK tax system in the hope that it will reduce the tax burdens placed on taxpayers, whether they be individuals or businesses.

But, for now, we must work with the legislation currently in place, so do you know how the UK personal tax system works?

A tax year for personal Income Tax runs from 6 April through to the following 5 April.  We are currently in the 2021/22 tax year, which runs from 6 April 2021 through to 5 April 2022.

Once a tax year is over, the tax return for that year can be prepared and submitted.  There are two deadlines for submitting a personal tax return to HM Revenue & Customs (HMRC).  The first deadline of 31 October following the end of the tax year applies to the submission of paper tax returns.  The later deadline of 31 January following the end of the tax year applies to returns that are submitted electronically.

Here at David Allen, we file all of our personal tax returns electronically.  This means that we avoid the risk of them getting lost in the post, which can lead to HMRC imposing late filing penalties.  It also has the benefit of giving our clients an extra couple of months to gather the information needed to prepare their accounts and tax returns.

Any personal Income Tax that is due is payable on 31 January following the tax year in question.

So, for example, we are currently in the 2021/22 tax year. The personal tax returns for 2021/22 should be submitted online to HMRC by 31 January 2023 and any tax due for the 2021/22 tax year must also be paid by the same 31 January 2023 date.

Although this gives us a 10-month window in which to prepare tax returns for our clients, we advise them to let us have their information as soon as possible after the year end.  The earlier we prepare a tax return the more notice we can give a client as to the amount of tax due for payment on 31 January and, more importantly, the earlier they may get back any tax that they have overpaid!

Unfortunately, the personal Income Tax system does not just consist of the above.  If your Income Tax liability for any tax year exceeds £1,000, HMRC require you to also make two ‘payments on account’ (POA) of your anticipated Income Tax liability for the following tax year.  These upfront tax payments, each of which is equal to half of your Income Tax liability for the previous year, are payable on 31 January and then 31 July following the end of the previous tax year.

So, for example, if your Income Tax liability for 2021/22 amounts to £1,500 this would be due for payment on 31 January 2023.  You would also be required to make a first POA of £750 on 31 January 2023 and a second POA of £750 on 31 July 2023.  Then, when your tax return for the year ended 5 April 2023 is prepared, these two POA would be deducted from your tax liability.

If your liability for 2022/23 is lower than that of 2021/22 the excess tax paid by way of the POA may be repaid to you.  If your liability for 2022/23 is higher, then you will be required to pay the difference on 31 January 2024 along with the first POA for the 2023/24 tax year.

The fact that there is such a big delay between the end of the tax year and the date that the tax due for that year is payable can be confusing.  A taxpayer may have had much higher income in the previous tax year but the tax bill for that year may be due for payment at a time when their income or business profits are much lower.  We can help taxpayers who find themselves in this situation by reviewing their estimated income for the later year and reducing the POA due, thus assisting with cash flow.

We can also help taxpayers set up payment plans with HMRC if they are unable to make their tax payments on time.

Whether you require assistance with your tax return or have some queries with regards to the personal tax system and when tax payments are due, please do not hesitate to contact us or visit one of our offices in Dalston, Dumfries, Penrith or Workington.