Payments on account - why are HMRC asking for next years' tax now?
As more and more people look to be become self employed or take a greater proportion of income in the form of dividends, payments on account are becoming the norm for many. Here we outline what these are, when they're applied and what it means.
What are "payments on account"?
‘Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).
What happens if the tax I've paid on account is more or less than the actual tax liability?
After you submit the next self assessment tax return, there may be some more tax to pay (a "balancing payment") or you may have overpaid.
Using our example; on 31st July 2018 you pay the second payment on account - i.e.
When do I NOT need to make payments on account?
In addition, if you have a good reason to believe your tax bill will be much lower for the coming year (e.g. you've lost a major contract) then you can request HMRC reduce the payments on account. To do this, either;
- log in to your online account and click ‘Reduce payments on account’
- send form SA303 to your tax office
Bear in mind that if you do this and your tax bill turns out to be significantly higher than you've said, HMRC can charge you interest on the tax owed.
If you know that your tax bill is lower, you can always submit your tax return early - although the deadline is 31st January, you can submit it any time after April 6th. This will allow HMRC to adjust your second payment on account if necessary.