Probably the most confusing thing for clients is understanding HMRC’s self-assessment statement and knowing what personal tax needs to be paid and by when. Causing most of the trouble are payments on account!
What are they and how are they calculated?
Payments on account are advance payments made towards your personal tax bill for the forthcoming tax year.
These are made on 31st January and 31st July.
How much you have to pay is based on your previous year’s tax return, with 50% being paid at each deadline. So if your tax bill for last year was £8,000 then you will be required to make the following payments on account:
- First payment on account 31st January 2024 £4,000
- Second payment on account 31st July 2024 £4,000
- Balancing payment (any extra tax due ) 31st January 2025
Everyone is required to make payments on account unless:
- your previous tax return tax bill was less than £1,000; or
- more than 80% of the tax you pay is deducted through PAYE
Can you reduce your payments on account?
Yes, if you predict that your tax bill in the next tax year is likely to be lower than last year, then you can apply for reduced or removed payments on account.
Beware though if your tax bill is not lower, and payments on account should have been made, then HMRC will charge you late payment interest.
How do you know what to pay?
The SA302 tax summary calculation will show the first and second payments on account, payable 31st January and 31st July. If a4c prepared your tax return then you would have been given a copy of this document along with your full tax return.
HMRC may also post a statement of your account as a reminder of forthcoming tax owed.
Understanding your numbers can feel daunting however we are always available to help explain how your accounts work, so that you can feel in control.