If you’re confused about self-assessment tax payments on account works, you’re not alone: Lots of people are caught out by the system works, particularly if it is their first tax return.
Grab a sweet treat and spend a couple of minutes getting your head around how it works.
The UK self-assessment tax return deadline is 31 January after the tax year. So, for the 2017/18 tax year that runs from 6 April 2017 – 5 April 2018, the tax return deadline is 31 January 2019.
That’s also the date by which you have to pay your 2017/18 tax (and class 4 National Insurance contributions, if applicable – which are NI contributions based on self-employed profit levels) bill.
The unfortunate thing that catches a lot of people out is that if your 2017/18 tax bill is more than £1,000 then you will have a 50% payment on account that is also due by 31 January 2019. This payment on account is the first payment on account towards your 2018/19 tax bill.
What that means is, if your 2017/18 bill is £1,200 then you will actually need to pay £1,200 + £600 (50% of £1,200) = £1,800 by 31 January 2019. If you aren’t prepared for that extra 50%, especially if you’ve also received the credit card bill from Christmas, then it will come as an unwelcome shock.
The second payment on account towards your 2018/19 tax bill would be payable by 31 July 2019 and is again 50% of whatever your 2017/18 tax bill was.
If there is still tax to pay for 2018/19, then you have to pay that (called a final balancing payment) by 31 January 2020. So, yes, than normally means that by 31 January 2020, as well as paying off any remains of your 2018/19 tax bill, you’ll be paying towards your 2020/21 bill.Yay, I won't get caught out by payments-on-account #tax Click To Tweet
The reason payments on account exist is so that people cannot run up a large tax bill which they then cannot pay. If you are having problems paying your tax bill, then contact HMRC Business Payment Support Service (which is misleading, as individuals can use this, not just businesses) as soon as possible and try and request a “time to pay” arrangement.
If you have overpaid tax, then HMRC will refund you – which might be an incentive for getting your tax return in early.
If you think your tax bill will be lower than the previous year’s then you can make an application to reduce your payments on account.
You can pay the tax by debit or credit card, bank transfer, cheque, at your bank or building society, direct debit, budget plan.
Remember that you need to allow for your payment to clear HMRC’s bank account, which could be several working days, depending on the payment method and your own bank.
If the deadline is over a weekend or bank holiday, you will need to ensure that payment clears on the last working day before the deadline.