Payments on Account: What you need to know

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It’s time to make your next tax payment – Don’t miss the deadline!

It seems like summer is finally here – time for barbeques, picnics, beer gardens – and your next Payment on Account!

31st July 2022 stands as the deadline for taxpayers to pay their second payment on account towards their 22/23 tax bill – some of you may have already received letters about it from HMRC.

What is a payment on account?

The Payment on account system was brought in by the revenue as a way of receiving tax payments from tax payers in advance of their tax return submission and the tax year ending.

It is calculated using the previous year’s tax liability as the estimate for the next year. When you submit your tax return for the last tax year, you are also required to pay 50% of that liability towards the current tax year’s liability. Then come July 31st, you are required to pay another 50% – so by the January deadline, you just need to pay the difference between the payments already made, and the actual liability.

If we take the following as an example:

Tax year 2019/20 was your first year trading.

31 January 2021 – Tax liability for 19/20 is due PLUS Payment on Account 1 (50% of the 19/20 liability, towards the 20/21 liability)

5th April 2021 – End of 20/21 tax year liability is calculated

31st July 2021 – Payment on Account 2 is due (remaining 50% of the 19/20 tax liability)

 31st January 2022 – Balance of 20/21 tax liability is due PLUS Payment on account 1 for the 21/22 tax year.

It sounds pretty complicated, and to be honest it’s not the easiest system to get your head around! So to help you we have added a section on paying your self assessment tax bill to our Ultimate Guide to Self-Assessment Tax Returns. We have even included an easy to follow “how to” video!

Do I have to make payments on account?

This depends on your liability, and other circumstances. If you have a total liability of less than £1000 (not including tax deducted at source, such as PAYE) then you do not need to make payments on account.

If you know that your liability is going to be lower than the previous year then you can request a reduction in your payment on account from HMRC.

How can this system help me?

Although the tax return isnt due to be submitted and balance paid until 31st January, using the 31st July Payment on account date as an aim for submitting your tax return could be a huge benefit.

If you calculate your tax return in July/August – then you will know the balancing payment and next year’s liability 6 months before you are due to pay. This could be a valuable time to sort cash flow, or request reductions in your payment on account, if needed. It can also give you time to make any tax planning decisions for the current tax year. 

Thousands of taxpayers are already starting to submit their 21/22 tax return – but it doesn’t have to be a complicated process – you can calculate your tax liability for FREE using  APARI Simple Self Assessment.

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