Individuals who complete self-assessment tax returns may need to make payments on account towards their 2017/18 tax liability by 31 July 2018. Payments on account are commonly misunderstood but they are designed to help individuals spread tax payments throughout the year instead of ending up with one large payment in January each year.
Each payment on account is calculated as half the previous year’s tax liability (including Class 4 National Insurance Contributions but excluding student loan repayments, capital gains tax and any tax deducted at source such as PAYE). The 1st payment on account is made in January together with the previous year’s balancing payment. The 2nd payment on account is made in July. For example, the 2017/18 payments on account are based on the 2016/17 tax liability which we’ll assume is £15,000. The first payment on account of £7,500 is payable by 31 January 2018 together with the 2016/17 balancing payment. The 2nd payment on account of £7,500 would be payable by 31 July 2018. In January 2019 any balancing payment would be due together with 2018/19’s 1st payment on account (note: the 2017/18 tax returns are due to be submitted by 31 January 2019).
If you believe that your payments on account are too high and would result in a refund once your return has been completed it is possible to reduce them. This can either be done online through your HMRC account or by completing the relevant form. The payments on account should be reduced to be half of what you estimate your tax liability to be however amending them should be approached with caution. If they are reduced by too much, interest is likely to be charged by HMRC which increases the overall liability payable to HMRC.
Should you have trouble paying any of the payments on account HMRC should be contacted prior to the payment due date to arrange a payment plan. This can be done by calling 0300 200 3822.
Should you require any assistance with your payments on account or have any queries please contact our personal tax team.