If you’re a Self-Assessment taxpayer, it is time to prepare for your upcoming second ‘payment on account’ – a prepayment towards your expected tax liability. Self-Assessment taxpayers with a tax bill exceeding £1,000 are required to make this payment by midnight on 31 July 2024.
How do payments on account function?
Payments on account are designed to help business owners, sole traders, and other taxpayers manage the financial burden of their next tax bill by spreading the cost over the year.
Typically, there are two such payments annually: one due by 31 January and the other by 31 July. Each payment usually represents half of your prior year’s tax liability, including Class 4 National Insurance Contributions (NICs).
This system aims to alleviate the need to pay the entire bill in one large sum when filing your Income Tax Self-Assessment (ITSA).
Adjusting payments based on income changes
These advance payments are based on the assumption that your income will at least match the previous year’s. However, if you anticipate a significant drop in income, you can request HM Revenue & Customs (HMRC) to reduce these payments.
Should it emerge that you’ve overpaid when you file your tax return, any excess will be refunded or credited against future tax liabilities.
What to do if you’re unable to pay
If you find yourself unable to make a payment on account, then you must contact HMRC immediately. Failing to pay by the deadline without notifying HMRC could lead to interest charges, increasing your total owed.
If you meet certain conditions, such as having submitted your most recent tax return, owing less than £30,000, and being within 60 days of your payment deadline, you might be eligible for a ‘Time to Pay’ arrangement. This formal plan allows you to spread your payments over time and can be set up online via your HMRC account.
For further assistance with compliance and managing your tax payments, please feel free to reach out for support.
