What are Payments on Account?
Understanding tax obligations is crucial for every taxpayer, and one aspect that often brings confusion is understanding Payments on Account. In this blog, we’ll delve into why HMRC imposes payments on account, the frequency of payments, the payment process, the challenges with accuracy, the impact on directors, and solutions for those facing financial constraints.
Why HMRC Imposes Payments on Account:
HMRC uses Payments on Account as a way to collect income tax and National Insurance Contributions (NICs) in advance for the upcoming tax year. This ensures that taxpayers make regular contributions, preventing a substantial tax bill at the end of the tax year.
Frequency of Payments:
Payments on Account are made twice a year – on 31 January and again on 31 July. Each payment is based on half of the previous tax year’s tax and NICs liability. For instance, if your tax bill for the previous tax year was £3,000, each payment on account would be £1,500.
How to Pay Payments on Account:
You can pay your Payments on Account through various methods, including:
- Online Banking
- Direct Debit
- Online by Card
- Sending a cheque to HMRC.
The payment details are available on your Self Assessment statement. You can use HMRC’s website to pay your Self-Assessment tax bill online. You will need your self-assessment UTR number which can typically be found on most letters sent to you by HMRC.
Challenges with Accuracy:
One common challenge with understanding Payments on Account is that they are based on the previous year’s tax liability. If your circumstances change, such as a decrease in income or increased allowable expenses, the payments may not accurately reflect your current tax liability.
To avoid paying the incorrect amount, we recommend that your file your return as soon as the tax year ends on 05 April 2023. This will allow HMRC to amend your second payment on account if applicable.
Directors and Payments on Account:
Company directors are not exempt from Payments on Account. If you are a director and receive income outside of PAYE such as dividends, you may be required to make payments on account based on your personal tax liability.
Paying More Than Necessary:
In some cases, taxpayers might end up paying more than necessary, especially if their income decreases or if they have additional tax reliefs. Failing to adjust Payments on Account can result in overpayments, and taxpayers may need to claim a refund later.
What to Do If You Can’t Afford to Pay:
If you find yourself unable to afford the full Payments on Account, it’s crucial to communicate with HMRC as early as possible. They may allow you to set up a Time to Pay arrangement, providing you with a more manageable payment plan.You can set up this payment plan to spread the cost of your latest Self Assessment bill online without calling us if:
- you owe £30,000 or less
- you do not have any other payment plans or debts with HMRC
- your tax returns are up to date
- it’s less than 60 days after the payment deadline
If the above is not applicable to your situation, you will need to call the self-assessment helpline on 0300 200 3310
How do I check my Payments on Account?
You can view both the payments you’ve previously submitted and the upcoming payments required through your Government Gateway account. To access this information:
- Log in to your online account.
- Select ‘View your most recent Self Assessment return.’
- Select ‘View statements.’
Conclusion:
Payments on Account can be a complex aspect of tax compliance, seeking professional advice from AO Accountants can provide tailored solutions to ensure you meet your tax obligations without unnecessary financial strain.
