If your tax liability is over £1,000 you normally have to pay payments on account of the next tax years liability.
If your tax liability is over £1,000 you normally have to pay payments on account of the next tax years liability. Here we’ve outlined how this is calculated.
Payments on account are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).
You have to make 2 payments on account every year unless:
- your last Self Assessment tax bill was less than £1,000
- you’ve already paid more than 80% of all the tax you owe, eg through your tax code or because your bank has already deducted interest on your savings
Each payment is half your previous year’s tax bill. Payments are 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 must make a balancing payment by midnight on 31 January next year.
Your bill for the 2013 to 2014 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).
The total tax to pay by midnight on 31 January 2015 is £2,700. This includes:
- your balancing payment of £1,200 for the 2013 to 2014 tax year (£3,000 minus £1,800)
- the first payment on account of £1,500 (half your 2013 to 2014 tax bill) towards your 2014 to 2015 tax bill
You have to pay your second payment on account of £1,500 by midnight on 31 July 2015.
If your tax bill for 2014 to 2015 is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2016.
Top Tip: If you know your tax bill is going to be less for the 2014 to 2015 tax year you can ask HMRC to reduce your payment on accounts.
Either way, it is always best to compelte your tax return as early as possible, particularly if you’re paying payments on account. If you complete your tax return prior to 31 July, you may be able to reduce the payment on account if your tax is less. If your tax is more, you do not pay the balance until the following January.
Contact us if you require any assistance or further explanations.