What is a Payment on Account?
If you owe more than £1000 tax you will be required to pay a Payment on Account. Payment on Account means that you pay your tax in two instalments:
- First in January (the usual deadline for paying the tax bill for last year)
- Second in July
Why is my first Payment on Account so high?
Basically, in your first year, you have to pay 150% of your tax bill in one go. For example:
- Your tax bill for 2021/22 is £5,000
- You’ll need to pay this in full by January 31st 2023
- You also need to pay 50% of your tax in advance for 2022/23 at the same time. 50 % of £5000 is £2,500
- You then have to pay another £2,500 by July 31st 2023
- In summary you will have to pay £7,500 by January 31st 2023 and then £2,500 by 31st July 2023.
What if my income is smaller next year?
You can ask HMRC to reduce your payment on account or if you have paid too much HMRC will refund the difference.
What if my income is higher next year?
You will be required to make a ‘balancing payment’ by 31st January next year to bring your account up to date. Your Payment on Account for the following year will be based on the total tax due and will again be paid in January and July.
If you have to make a payment on account, then please get in touch with us so we can let you know how much it is going to be to help you ensure you have enough money set aside to make the payment. Get in touch with us by clicking the link below!