Update for LLPs: Payment on account due this month

As a partner in a general partnership or LLP, you will need to make your second 6-monthly ‘payment on account’ by the end of July. The amount of payment on account will be based on 50% of your combined Self-Assessment tax and Class 4 NIC liability for 2016-17.

Partners’ profit shares often vary from one year to the next. As a result, your 2017/18 Self-Assessment tax liability may be substantially higher or lower than last year’s. The default payments on account of half your 2016/17 tax liability could well be either too high or too low to meet your final 2017/18 liability.

If your profits were higher for 2017/18 and therefore expect to pay more tax, you are not under any obligation to pay more than the default payment of account of half your final liability for 2016/17. Rather, any liability for 2017/18 which remains outstanding after paying both payments on account is due for payment by 31 January 2019, which is also the filing deadline for your 2017/18 tax return.

However, if your 2017/18 profit share is lower than last year’s, it is likely that your tax liability will also be lower. Assuming you paid your January payment on account (based on the 2016-17 results), you may well have already paid HMRC more than half your anticipated tax liability for 2017/18. In such circumstances, if you pay the second payment on account in July, it is likely that you will have paid too much during the year and hence expect a tax refund in January 2019, when the 2017/18 tax returns are due for submission.

If you find yourself in this position, you can make a formal application to reduce your 31 July 2018 payment such that the sum of the two in-year payments does not exceed your expected 2017/18 liability. The reduced payment on account must be realistic and based on your best estimate of your final liability for the year. Ideally this would be calculated based on your actual profit share for the year, or at least a provisional figure which should be known by now.

Where payments on account are reduced below the level of your final tax liability for 2017/18, HMRC will charge late payment interest based on the default payments on account, and the date they should have been paid. It is therefore important that payments on account are not reduced excessively.

Your Moore Stephens contact can help with estimating your 2017/18 tax position, and applying to reduce your July tax payment where appropriate. Contact us today to see how we can help.

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