Frequently Asked Questions : Payments on Account for Self-Assessment

What are payments on account?

Payments on account are payments you are required to make to HMRC twice-a-year to pay towards your expected tax liability for the next tax year. It’s essentially paying forward your tax bill.

Who needs to make a payment on account?

In theory anyone who has taxable income that is not taxed at source(i.e. through PAYE on your employment income) would be expected to make payments on account, although there are a couple of exceptions.

If your tax bill is less than £1,000 or 80% or more of your tax has been deducted through PAYE, then payments on account will not be due.

How much do you need to pay?

Each of your payment on account is usually equal to 50% of your last tax return liability, this is considered an estimate of your future tax bill.  You then make a balancing payment once your tax return has been submitted to HMRC and your actual tax liability is known.

When do you need to make the payment?

The first payment is due on 31 January and the second is due on 31 July, you are then required to make a balancing payment on the following 31 January once your tax return is submitted.

Still don’t understand?

Here is an example which demonstrates how the payments on account work over two tax years:

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What happens if your income changes each year?

It’s usual for total taxable income to fluctuate each year, and therefore for your tax liability to also change. This is why you need to make a balancing payment after your tax return has been filed, in this example you can see that there is a balancing payment on 31 January 2023 as the previous payments on account of £600 each do not cover the tax liability.

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What can you do if you expect your income levels to change?

In the event you expect your income to significantly fall in the coming year, you may be able to make a claim to reduce your payments on account.  It’s important you keep up to date with your accounts so you have evidence of the reduction to support your claim.

If you expect your income to increase you need to plan your cashflow accordingly, as not only will you have a higher balancing payment to make but your subsequent payments on account will also increase.

How do you make payments on account?

Your payments on account can be made via:

·        Your online bank account

·        Online or telephone banking

·        Online via debit or credit card

·        In branch at your bank or building society

·        BACS

·        Direct debit

·        Cheque

It is important that you are aware of how much you are due to pay and arrange for payments in advance where possible to ensure you do not incur any late payment penalties or interest. Details on how much you are required to pay are outlined on your tax return.

How can Linggard and Thomas help?

When we prepare your tax return we also let you know how much your payments on account are and when they are due. We send you reminders near the time when your payments are coming up for payment.  We also look at your current year financials and work out what your future liabilities might be, helping to plan your cash flow better.

Linggard and Thomas are chartered accountants based in Newquay that can help with your self assessment tax return. We are a pro-active accountancy firm that go beyond the numbers to give you tailored advice to empower your business to grow.

Get in touch today to see how we help you succeed.