Self-Assessment Payments on Account

Do you fully understand your self-assessment tax bill? “Payments on account” are an area that often raises questions and concerns. To manage your personal finances or your business’s financial affairs, it’s essential to understand how to manage your tax liabilities – in this comprehensive guide, we will walk you through what self-assessment tax payments on account are, why they exist, how they work, and how our expert team can help you manage them effectively.

If you’re looking for help with other taxes, from Corporation Tax to VAT Returns, get in touch with our friendly experts today. You can also book an appointment online directly here. Alternatively, carry on reading for more information on how to manage your self-assessment payments on account.

What Are Payments on Account?

Payments on account are designed to help individuals and business owners meet their annual tax obligations efficiently by making advance payments towards their self-assessment tax bill (including Class 4 National Insurance). If you are self-employed, a partner in a partnership, or a shareholder in a company, you are likely to be subject to self-assessment payments on account.

Why do Payments on Account Exist?

The primary purpose of self-assessment payments on account is to help taxpayers spread the cost of their annual tax liability over the tax year rather than facing a substantial one-time payment. This can be especially beneficial for those with varying incomes, ensuring they have the funds available when the final tax bill is due. Additionally, it helps HMRC receive a regular income stream and minimises the risk of taxpayers falling behind on their payments.

How Do Payments on Account Work?

Self-assessment payments on account are advance payments made twice a year, usually in two equal instalments. HMRC estimates your tax owed for the upcoming year based on the previous tax year’s bill. To calculate your upcoming payment on account, you can halve your previous tax year’s bill. However, as business income naturally fluctuates from year to year, your actual tax bill won’t necessarily match the estimation.

Payments on Account Deadlines

There are two deadlines for paying your self-assessment payments on account:

• Midnight 31^st January – to pay tax owed for the previous tax year (the balancing payment) and your first payment on account for the upcoming tax year. This is also the same date that your self-assessment tax return is due.
• Midnight 31^st July – to pay the second payment on account for the upcoming tax year.

Missing a payment deadline may result in interest charges, and you may also incur late payment penalties, which can increase your tax bill significantly. Staying on top of your payment obligations is essential to avoid these additional costs.

Balancing Payments

After meeting your payments on account, if you still have outstanding tax to pay, you must make an additional balancing payment by 31 January the following year. This may also include anything you owe for capital gains or student loans (which aren’t included in your payments on account).

How to Reduce Payments on Account

If your tax liability for the current year is expected to be lower than the previous year, you can apply to HMRC to reduce your payments on account, either online, or by post (by filling out a SA303 form). This can help you avoid overpaying taxes and receive a refund when you file your tax return.

Refunds

If you overpay, HMRC will tell you once you’ve filed your tax return, and you’ll be entitled to claim a payment on account refund. You can then choose how you wish to receive your refund, whether by cheque or bank transfer – alternatively, you can pay it forward towards your next payment on account tax bill.

Exceptions

You don’t have to make payments on account if you meet the following criteria:

• You owed less than £1,000 for your last self-assessment tax bill
• You’ve paid over 80% of the previous year’s tax owed, e.g., through your tax code or because your bank had already deducted interest on your savings

How to Make Tax Payments on Account

There are multiple payment methods available, but it’s crucial to ensure you allocate sufficient time for your payment to be processed before the deadline.

Same or Next-day Payments

For same or next-day payments, you can choose from options such as online banking, CHAPS, paying online using a personal debit card or corporate credit card (please note that personal credit cards are not accepted), or making the payment at your bank (you’ll need an HMRC paying-in slip for this method).

Bacs or Cheque

If you opt to pay via Bacs or by sending a cheque through the post, please allow three working days for processing.

Direct Debit with HMRC

To ensure you never miss your payment on account, a convenient approach is to establish a direct debit with HMRC. By providing this form to your bank, you authorise HMRC to collect the amount you owe from your account, with advance notifications regarding the amount and collection date.

Please allow five working days for the initial processing of a direct debit when you set it up for the first time.

Budget Payment Plan

For those who prefer to make regular monthly or weekly payments toward their upcoming tax bill, you can create a Budget Payment Plan. You have the flexibility to choose how much you want to pay and how often.

The funds contributed to your Budget Payment Plan will be applied against your forthcoming tax bill, reducing the amount you owe by the plan’s total. However, if your plan doesn’t cover your full tax liability, you will be responsible for paying the remaining balance.

How to Check Your Payments on Account

Need to check the payments on account you’ve already made? And/or payments on account you need to make towards your next tax bill? Then just sign in to your gov online account, select the option to view your latest self-assessment tax return, then select ‘view statements’.

Self-Assessment Payments on Account: How We Can Help

Managing payments on account for your self-assessment tax bill can be a complex and sometimes confusing process. At Mercian Accountants, our dedicated team of experts specialises in tax planning and compliance. We can assist you in several ways:

• Tax planning: We can work with you to estimate your current year’s tax liability accurately, ensuring that your payments on account are not higher than necessary.
• Filing your tax return: We will prepare and file your self-assessment tax return, making sure all deductions and credits are considered, which can potentially lower your tax liability.
• Reducing payments on account: If your income is expected to decrease in the current year, we can help you apply to HMRC to reduce your payments on account, preserving your cash flow.
• Meeting deadlines: We will keep track of the important payment deadlines to ensure you’re never caught off guard.
• Minimising stress: We understand that tax matters can be stressful. Our team is here to provide support and guidance, making the process as smooth as possible.

Need Guidance on Self-Assessment Payments on Account?

Self-assessment payments on account may seem complicated at first, but with the right guidance and expert advice, you can navigate the system with ease. At Mercian Accountants, we are committed to assisting you in understanding and managing your self-assessment tax bill. Let us help you achieve financial peace of mind and chat with us today – you can either schedule an appointment through our online booking system, reach out via our online form, call us at 01743 562430, or email us at hello@mercianaccountants.co.uk.