If you are a Self-Assessment taxpayer, it is almost time to make your second ‘payment on account’ – advance payment towards your tax bill for the 2023/24 tax year.
How do payments on account work?
If you complete and submit a Self-Assessment tax return you have to make two payments on account in respect of your tax liability, unless:
- Your tax bill for the previous tax year was less than £1,000, or;
- You paid more than 80% of your previous year’s tax bill at source, i.e. through PAYE.
There are two payments on account each year – one payable on 31 January in the relevant year of assessment and the other on 31 July following the end of the relevant year of assessment.
Each payment is half of the previous year’s tax bill, including Class 4 National Insurance Contributions.
What if my income is lower this year?
Payments on account work for many taxpayers where income levels do not fluctuate significantly because they assume that you will owe a similar amount of tax to the previous year.
If you expect your income to be substantially lower for 2023/24 when compared to 2022/23, you can apply to HM Revenue & Customs (HMRC) to reduce the payments on your account.
Alternatively, submitting your tax return for 2023/24 to HMRC before 31 July 2024, will result in the second payment on account automatically becoming the balance of tax due for 2023/24.
In any event, when you submit your tax return, if it turns out that you have paid more tax on account than you need to, this will be refunded or offset against future tax liabilities.
What if my income is higher this year?
If you expect your income and therefore your tax bill to be higher for the 2023/24 tax year, it is important that your tax return is completed and submitted to HMRC as soon as possible. By doing this, your second payment on account won’t change but you will know how much your balancing payment is going to be, well in advance of the due date for payment of 31 January 2025.
What happens if I can’t pay?
If you cannot pay your upcoming payment on account, it is important to contact HMRC as soon as possible to agree a payment plan.
However, missing the deadline will mean that interest will be charged to your account.
You may be able to set up a ‘Time to Pay’ agreement with HMRC, which is a formal payment plan, if you:
- Have filed your latest tax return.
- Owe £30,000 or less.
- Are within 60 days of the payment deadline.
- Do not have any other payment plans or debts with HMRC.
You can set up a Time to Pay agreement online through your account with HMRC.
For support with compliance and managing the cost of your tax bill, please contact us.
