Payment of income and capital gains tax

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Payment of income and capital gains tax
  • Payments on account
  • Balancing payments
  • Making the payment

Tax is collected in a number of ways. These are:

  • collection at source throughout the year
  • payments on account calculated by reference to the tax due for the previous tax year
  • balancing payments for the tax year (tax liability less tax already deducted at source or paid on account)
Payments on account

Payments on account are required where:

  • the amount payable at the end of the previous year was more than £1,000
  • the amount collected at source was less than 80% of the total tax liability (TMA 1970, s 59A(1))

Each payment on account is 50% of the previous tax year’s tax liability, less the tax collected at source.

Payments on account do not cover capital gains tax since this is a transactional tax and cannot be assumed to remain at the same level year on year; whereas it is a reasonable assumption that income levels will remain static.

Basically, if over 20% of the trustees’ total tax liability for the year is outstanding and to be collected via Self Assessment (assuming this amount is more than £1,000), then payments on account fall due.

See Example 1.

Claims to reduce payments on account

If the trustees anticipate that the outstanding income tax due for the current tax year will be less than the corresponding amount for the previous tax year, a claim can be filed to reduce the payments on account.

TMA 1970, s 59A(3), (4)

The claim must specify the amounts of the revised payments on account (even if these are nil) as well as the reason for the reduction.

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