Why do I Need to Make a Payment on Account?

Payment on account

Payments on account are advance payments towards your tax bill. The system is intended to split your tax bill over two payments, which for some may be easier than making a single large payment once a year. It also helps to ensure that tax payers are not indebted to HMRC, and it gives the public finances a mid-year boost.

You will need to make a payment on account if:

  • Your last Self-Assessment tax bill was more than £1000
    And
  • Less than 80% of all the tax you owe has been paid already (for example through employee PAYE).

How much will you need to pay?

The amount you pay on account is based on your total bill for the previous year and payment is due in two instalments, so you’ll pay 50% on 31st January and the other 50% 31stJuly.

This is in addition to any balancing payment you need to make for the previous tax year, which is also due on 31st January.  

Date Payment Due Payment is Based on:
31st January 2018 Balancing payment for yax year 2016/17 Total tax bill for 2016/17, less payments on account made in 2017
31st January 2018 First payment on account for tax year 2017/18 50% of 2016/17 tax bill
31st July 2018 Second payment on account for tax year 2017/18 50% of 2016/17 tax bill
31st January 2019 Balancing payment for tax year 2017/18 Total tax bill for 2017/18, less payments on account made in 2018
31st January 2019 First payment on account for tax year 2018/19 50% of 2017/18 tax bill

Balancing payments

It’s unlikely that your tax bill will exactly match what you paid last year and the difference is made up in a balancing payment, which is due on the 31st of January.

For example, if 2015/16’s tax bill was £8,000 and 2016/17’s was £10,000 and 2017/18’s is £13,000

Date Payment Due Amount Due:
31st January 2018 Balancing payment for yax year 2016/17 £2,000 (£10,000 less £8,000 payment on account)
31st January 2018 First payment on account for tax year 2017/18 £5,000 (50% of £10,000)
31st July 2018 Second payment on account for tax year 2017/18 £5,000 (50% of £10,000)
31st January 2019 Balancing payment for tax year 2017/18 £3,000 (£13,000 less £10,000 payment on account)
31st January 2019 First payment on account for tax year 2018/19 £6,500 (50% of £13,000)

What if this year’s tax bill is lower than last year’s?

Contractor incomes are not fixed, and it’s always possible that this year’s profits won’t match what you made last year. If you believe this year’s tax bill will be lower than last year’s, you can apply to lower your payment on account. You can do this on the Tax Calculation section of your return; your Orange Genie Accountant will be able to assist you.

A word of warning about underpayments

We’d only advise you to reduce your payment on account if you’re sure your tax bill will be lower than last year. Underpayments will be subject to interest so if you reduce your payment for any other reason you’ll end up paying more. If you overpay because your tax bill is lower than last year, the overpayment will be refunded.

If you’re having difficulty paying your tax bill, please discuss this with your accountant or contact HMRC as soon as possible.

How to make a payment

Payments can be made using HMRC’s online system, and they prefer all payments to be made this way. Please note that HMRC no longer accepts payments from personal credit cards.

You’ll need your 11-character Unique Taxpayer Reference to make a payment. Contact your accountant if you need advice or assistance.

If you have any questions about payments on account of if Orange Genie can help in any way please call our expert team on 01296 468 483 or email info@orangegenie.com.

 

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