By Lynne Gowers on 6th July 2018

Payments on Account – what they are and how to pay

It is the time of year again when HMRC are sending out Self-Assessment Statements. These show all personal tax transactions you have made since the last statement along with details of the second payment on account for the year 2017-18, due by 31st July.

So here’s all you need to know about Payments on Account for self-assessment tax.

What are Payments on Account?

Payments on Account are advance payments towards future tax made by those completing a self-assessment.

HMRC calculate this by looking at your previous year’s tax bill and it is paid in 2 instalments, enabling the cost to be spread over the year.

The first instalment is due on 31st January (the same day as your balancing payment for the previous tax year) and the second is due on 31st July.

The intention is to enable you to spread your personal tax bill over the year, and avoid large lump sum payments each January.

Each of the annual instalments will normally be 50% of your previous year’s self-assessment tax bill. So, if you paid £5,000 for the previous tax year, you will make the first payment on account of £2,500 on 31st January and a further £2,500 on 31st July.

If, when you file your self-assessment, your payments on account are less than your final bill, you will have to pay the balance. Equally if you have paid too much, you will be entitled to a tax refund.

When are Payments on Account not necessary?

You do not have to make payments on account if your personal tax bill for the previous year was less than £1,000 after PAYE.

Likewise payments on account will not be due if 80% or more of your income in the previous tax year was taxed at source.

Adjusting the payment

If your tax circumstances are due to change from one year to the next, for example if you are entering full time work and will be taxed under PAYE, you should contact HMRC (or Boox, if we prepare your tax return) and they may reduce your payments on account.

However if they do this and you end up underpaying tax as a result, you may be charged interest and penalties on the amount involved.

How to pay

There are several ways to make a payment on account, and handily HMRC lists these on the back of the self-assessment statement.

You can also explore the payment options in our blog: How to pay HMRC

Self-assessment reminder

Here at Boox we offer an early bird discount rate for our self-assessment service, starting from £110 + VAT (dependent on your circumstances) until 31st August 2018. If you would like to beat the rush and higher fees, download a questionnaire or get in touch with our tax team.

Get in touch

Lynne Gowers Written by Lynne Gowers

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