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What is payment on account and how do I pay it?
An article from Sage explains the concept of payment on account for self-assessment tax returns, aiming to clarify the process for small business owners and self-employed individuals. Here are the key points:
What are payments on account?
- Definition: payments on account are advance payments made twice a year towards your self-assessment tax bill. They are based on your previous year’s tax bill to help spread the cost of your tax payments.
- Purpose: this system is designed to help taxpayers manage their payments and avoid paying large sums in arrears.
How it works
- Calculation: HMRC estimates your tax bill for the upcoming year by halving your previous year’s tax bill. These payments are due in two instalments: one by 31 January and the other by 31 July.
- Balancing payment: if your actual tax bill is higher than the payments on account, you will need to make an additional balancing payment.
Eligibility
- Thresholds: you are required to make payments on account if your last self-assessment tax bill was £1,000 or more, and less than 80% of your tax was deducted at source through PAYE.
Payment methods
- Options: payments can be made via online banking, CHAPS, debit or corporate credit card, or at your bank. Setting up a direct debit with HMRC is also an option to ensure timely payments.
- Budget payment plan: you can set up a plan to make regular monthly or weekly payments towards your next tax bill.
Adjustments and refunds
- Reducing payments: if you expect your income to be lower, you can apply to reduce your payments on account. However, if you underpay, you may incur interest.
- Refunds: if you overpay, you can claim a refund through the self- assessment process, which can be paid back to you or put towards your next tax bill.
For more information and the full article, visit What is payment on account and how do I pay it?