Let us say you earned 50K during 1/1/03 to 31/12/03. The year prior to that you earned 30K.
How much is the tax liability due on 31/1/04? Do you pay half of the tax due for 1/1/03 to 31/12/03? Or half for 1/1/02 to 31/12/02? Am I correct in thinking there is some adjustment according to how much you actually earned rather than the estimate?
Can someone clarify for me please?
Regards,
Jon
Assuming your income is from a business for which the accounting year runs from 1 Jan to 31 Dec, then your 2002 earnings are assessed as relevant to the 2002/03 tax year, and your 2003 earnings to 2003/04. This is because your accounting date 31/12/02 lies within the tax year from 6/4/02 to 5/4/03.
In Jan 2004 you pay all the tax you still owe for 2002/03 (i.e. 2002), if any, allowing for any payments on account you may have made in Jan and Jul 2003. In addition, you make the first payment on account in respect of 2003/04 (i.e. 2003). This is estimated to be half of the same as what you had to pay for 2002/03, but if you already know (or have a pretty good idea) that the tax you will owe for 2003/04 will be substantially less (or more) than the estimate (as you should, because your 2003 books should be closed by now), then you can apply to reduce (or volunteer to increase) that payment.
If your business is so young that you have not yet made any payments on account, the bottom line is that you must now pay 150% of the tax due for 2002/03 (based on your Jan-Dec 2002 earnings).
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