What is payments on account

You are currently viewing our locale site. For more relevant information select a location from the drop down or dismiss to continue browsing. Payments on account are due on 31st January and 31st July, and are worked out as half the previous year's tax and class 4 National Insurance liability. Class 2 National Insurance does not count towards payments on account. Important: In response to the coronavirus crisis, HMRC gave Self Assessment taxpayers the option of deferring their July payment on account until 31st January Deferring this payment may have resulted in some taxpayers having to make the following three payments on or before 31st January Self Assessment taxpayers who cannot afford to make all three of these payments can arrange a Time to Pay arrangement with HMRC but this may have an effect on Class 2 National Insurance contributions.

When you are employed you work for a week or a month, and at the end of that period your employer tells HMRC how much you earned and passes the tax element onto HMRC on your behalf. This means you only every receive your income net of tax. When you are self-employed, unless you work under the construction industry scheme CIS , you received your income gross. Tax is something you can deal with later. And later it is, as you do not have to pay your tax to HMRC until end of January the following tax year.

I know we generally talk about your business income in terms of years, so April to March as an example, rather than month by month. An employee will pay tax on their April income in April A self-employed person will pay tax on their April profits in January Fortunately, not everyone who completes a self-assessment tax return will have to make a payment on account.

So, your taxable business profits need to exceed approx. The second clause is in place to stop people having to make payments on account if there has been an error with their PAYE code for example.

This could be due to receiving a company benefit such as a company car or health insurance, which was not adjusted for within your employment income. Because of the pandemic, this situation is likely to be more common than in previous years. If you overpay because your tax bill is lower than last year, the overpayment will be refunded. Please note that HMRC no longer accepts payments from personal credit cards. This all highlights the need to be putting money aside regularly.

You'll then be able to fulfil your tax payments at the beginning and mid point of every calendar year. Find an advisor to help you put in place a tax payment plan. That way you can manage your personal finances effectively. Be sure to factor that in around the deadline. If the payments on account deadline falls over a weekend or bank holiday, you need to make sure your payment reaches HMRC on the last working day prior to the weekend in question. Being tax efficient is a process that starts with your tax return.

We've written a piece about how to be better prepared for your online tax return. Here's a summary of the benefits of submitting it before the deadline:. Filing your tax return early before the 31 January deadline will mean you should receive any tax refund you may be due, soon after submission. In instances where you think you have overpaid tax, be sure to get your return in as promptly and early as possible. That way you can obtain your refund sooner. Filing your tax return results in a tax liability calculation.

This presents you with the total tax bill you owe to HMRC. Doing so earlier means you can plan. That way you can give yourself more time to set money aside for payment.

This allows you to better manage your cash flow and finances. It will be deducted from your wages or pension at whatever interval arrangement you have set up weekly or monthly.

Your income might vary markedly from one year to the next. Whether a significant increase due to a dividend payment or, a steep decline as a result of trading losses, early submission provides more time for tax planning. You can then assess where you might be paying more tax than you legally should be.