Payments on account are advance payments made towards your tax bill, including Class 4 National Insurance if you’re self-employed, in the United Kingdom. This system helps spread the cost of your tax liabilities over the year.

Here’s how it works:

Who needs to make payments on account?

Typically, payments on account are required if your last Self-Assessment tax bill was over £1,000 unless more than 80% of your tax is collected at source (e.g., through PAYE).

How payments on account work

1. Calculation: Payments on account are based on your previous year’s tax bill. You make two payments a year, each amounting to 50% of the previous year’s tax bill.
2. Payment Schedule:
   • The first payment is due by January 31st (in the same year as the filing deadline for the previous tax year).
   • The second payment is due by July 31st of the same year.
3. Balancing Payment: If your actual tax bill for the year is higher than the payments on account you’ve made, you’ll need to make a balancing payment by the following January 31st. Conversely, if you’ve overpaid, you can request a refund or have it credited towards your next year’s tax bill.

Example

• For the tax year 2022/2023, you filed your return and your tax bill was £2,000.
• You would need to make two payments on account for the 2023/2024 tax year, each of £1,000 (50% of £2,000).
  • First payment: £1,000 due by January 31, 2024
  • Second payment: £1,000 due by July 31, 2024

If your tax bill for 2023/2024 ends up being £2,400, you will have already paid £2,000 through payments on account. Thus, your balancing payment of £400 would be due by January 31, 2025.

You can make your July payment on account using the following link: https://www.gov.uk/pay-self-assessment-tax-bill

Adusting payments on account

If you believe your income for the next tax year will be significantly lower than the previous year, you can apply to reduce your payments on account. This can be done through your online Self Assessment account or by submitting form SA303.

Consequences of not paying

Failing to make payments on account can result in interest and penalties. HMRC charges interest on late payments, so it’s crucial to keep up with these payments to avoid additional charges.

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summary

• Two Payments a Year: Each 50% of the previous year’s tax bill, due on January 31 and July 31.
• Balancing Payment: Due January 31 following the end of the tax year if your actual tax exceeds the payments on account.
• Adjustments: Possible if expected income is significantly lower.

Understanding and managing payments on account can help you stay on top of your tax obligations and avoid unexpected tax bills.

If you need more help with your payments on account, give us a call.