Payments on Account – Self Assessment Tax Returns

Payments on Account – Self Assessment Tax Returns

With the deadline to file your self-assessment tax return looming – it’s important that you understand your self-assessment tax bill and particularly if you need to make ‘Payments on Account.’

So, what are ‘Payments on account?’

The easy answer is that they are advance payments towards your tax bill (including national insurance if you’re self-employed).

The way this works is as follows;

Each payment on account is half your previous year’s tax bill. Payments are usually due by midnight on 31 January and 31 July.

If you still have tax to pay after you’ve made your payments on account, you will also make a ‘balancing payment’ by midnight on 31 January the following year, when your next tax return has been completed.

For Example

Your bill for the 2021 to 2022 tax year is £3,000.

You made 2 payments of £900 each (£1,800 in total) on account towards this bill in 2021.

The total tax to pay by midnight on 31 January 2023 is £2,700. This includes:

• your ‘balancing payment’ of £1,200 for the 2021 to 2022 tax year (£3,000 minus £1,800).
• the first payment on account of £1,500 (half your 2021 to 2022 tax bill) towards your 2022 to 2023 tax bill.

You then make a second payment on account of £1,500 on 31 July 2023.

If your tax bill for the 2022 to 2023 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2024.

Please note – Payments on account do not include anything you owe for capital gains or student loans (if you’re self-employed) – you’ll pay those in your ‘balancing payment.’

If you wish to ‘Reduce’ your payments on account.

If you believe your tax bill is going to be lower than last year, you can ask HM Revenue and Customs (HMRC) to reduce your payments on account. You can do this either online or by post.

If you overpay – HMRC will send you a refund.

If you underpay – HMRC will charge you interest.

If you believe your liability will be considerably lower the following year, then the best advice would be to get your self-assessment tax return filed as soon as possible in the new tax year. This will mean that you know your true tax position.

If your self-assessment tax bill amounts to less than £1000, you won’t be asked to make a payment on account, as well as if you paid more than 80% of the previous year’s tax, maybe through your tax code.