Under the self assessment regime, taxpayers are normally expected to pay their tax bill by 31st January following the end of the tax year.
However, if your tax bill was over £1,000 and less than 80% of your tax has already been collected, you’ll also be expected to make two installments for next year’s tax bill. These are called ‘Payments on Account’ and are due by midnight on 31st January following the tax year and the following 31st July.
We would make a couple of recommendations if you are late making a payment on account:
- Pay what you can; as soon as you can. Interest will be charged on any balance outstanding on a payment on account until they are fully settled.
- Prepare and file your tax return as soon as you can. Payments on account are merely estimates so preparing your tax return will establish what your actual tax bill is. It may be that your payments on account are more than your actual tax bill and that you are due a tax refund. Filing your tax return early will trigger the tax being refunded to you. On the other hand, if your payments on account don’t quite cover your actual tax bill, filing your return early doesn’t mean you must pay early. It simply means you have time to save towards paying the balance, which is due by 31st January as normal.
Moving forward, you should try to put aside 25% of your profits for your tax bill. It might not cover it all or that might be too much, but at least it should avoid any nasty surprises. If you think you might be a higher rate taxpayer, we’d recommend you put aside around a third of your profits for your tax bill.
If you have questions surrounding Payments on Account or your tax bill, contact us to discuss with you what your options are and whether you have the opportunity to reduce or defer your tax payments.