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Do I have to make payments on account?

Payments on account are mandatory payments towards the next year’s income tax. This is calculated on your Self Assessment tax return.

You only have to make payments on account if your tax bill for the previous tax year was more than £1,000, and less than 80% of it has already been collected. You will need to have settled your payments on account before you submit your self assessment tax return.

What does this mean?

HMRC require you to make two payments, one due by the 31st January and another by 31st July. 

How is it calculated?

HMRC require you to pay 100% of your tax bill and then an extra 50% by 31st Jan. The Payment on Account is another 50% by 31st July- sounds confusing, we know.

Example

Your tax for the 16/17 tax year is £10K, but HMRC really require you to pay £15K by 31st Jan 2018. Then the Payment on Account is due by 31st July 2018 and remember this is calculated at 50% on the original Self Assessment tax bill of £10K for the 16/17 tax year.

Please remember in this example it’s not £5K by 31/01, it’s £15K then the additional £5K by 31/07. The total bill for 15/16 still remains £15K.

 
Our advice
 
The best way to handle this for cashflow purposes is to ensure you give yourself enough time to plan for your personal tax bill. If you leave the filing of the Self Assessment closer to the deadline, you will end up paying all 150% in one and by 31st Jan.
So by taking care of your Self Assessment early, you can pay the total bill owed, then plan to pay the next instalment by 31st Jan, then again by 31st July.
If the tax you pay turns out to be less than what you’ve paid ahead in payments on account, then you’ll be refunded the balance.
 
 
Last Updated: 21 Jul 2017 12:35PM BST
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