You might have received a statement from HMRC in the past few weeks reminding you that your payment on account is due by 31st July. I'm here to shed light on what a payment on account is so you can navigate this aspect of tax compliance. With the July 31 deadline approaching, it's important to understand what payments on account entail and who they apply to.
What are payments on account?
When you're self-employed, HMRC may require you to make payments on account towards your future tax bill. These payments act as an advance payment for your tax liability and help you spread the cost over the year. They are calculated based on your previous year's tax bill.
Who needs to make payments on account?
If your tax bill exceeds £1,000 and less than 80% of your tax liability is covered through tax deductions at source (e.g., through PAYE), you're likely to be required to make payments on account. The first time you're required to make a payment on account can come as a shock as you effectively need to pay 150% of your tax bill in one go so it's essential to understand your individual tax situation and make sure you are saving for this as you go. If you have no idea how to do this then get in touch and I help you.
I can't afford to make my payment on account - what can I do?
Unfortunately you simple cannot just avoid making your payments on account to HMRC. However, if you believe that this year your profits will be lower than they were in the previous tax year then you can ask HMRC to reduce your payments on accounts to reflect this. You can do this online via your government gateway account and completing a form SA303 or your accountant can help you with this. Please remember if you incorrectly reduce your payments on account then you may be liable to interest being charged on the payment on account you should have made!
How to make your payments on account
The easiest way to make your payment on account is through your government gateway account (HMRC online). The amount you need to pay will also be shown on there. You can also make a bank transfer directly to HMRC and you will need to make sure you include your unique payment reference which will be shown any correspondence you recieve from HMRC in relation to your payment on account.
If you need any further help with payments on accounts then you can email me at