You will be required
to make payments on account if:
- your Self Assessment tax bill is more than
- you pay less than 80% of all the tax you owe
through PAYE, for example through your tax code or because your bank
has already deducted interest on your savings
Put simply, you are
required to make two payments on account towards next year's liability (green
The first payment on
account (green) is due with the balance of your tax liability for this year
(purple) which totals the amount due by 31 January (orange) and then the second
payment on account is due by 31 July (red).
On next year’s tax
return, you can include the green and red payments on your tax return if you
have paid them to HMRC and this will reduce the balance of tax due.
More information on payments on account can be found on HMRC's website:
The tax due for 2020/21 is £5,000 to be paid by 31 January 2022.
However, HMRC also assume that you will owe a similar amount of tax for the 2021/22 tax year so ask for 2 x payments on account. Each payment is 50% of the 2020/21 tax year so is £2,500 and are to be paid 31 January 2022 and 31 July 2022. This brings the total payable on 31 January 2022 to £7,500.
If you include payments on account paid of £7,500 on your 2021/22 tax return, you will be overstating the tax paid and therefore GoSimpleTax will show a lower amount due and you will be paying less than required to HMRC and they may send you a statement showing an underpayment of tax. Always check your HMRC portal if you have access to ensure the correct amount of tax is paid.
If you think you will owe less tax in 2021/22 then you can elect to reduce the payments on account to a lower amount, this can be done on the tax return by following the instructions at HOW DO I REDUCE MY PAYMENTS ON ACCOUNT?
Please note that if you do this and you reduce the payments on account too much and you then do not pay enough tax then HMRC will charge you interest on any shortfall.
HMRC also have a special time to pay arrangement so that any tax due on 31 January 2021 can be spread over 12 months, you can apply for this 3 days after filing your tax return at https://www.gov.uk/difficulties-paying-hmrc
however this is aimed at the self employed so I am not 100% certain if you would be eligible, and they charge interest.
HMRC may send you a
reminder to pay your tax in July but they aren't required to, I would advise
you make a calendar appointment to make payment closer to the time.
If you are expecting
your untaxed income to be less next year, you may wish to reduce your payments
To do this you should
press VALIDATE MY TAX RETURN > YES which brings you to the Almost There!
Page and scroll down to the following question and answer it YES:
Please note, the amount you enter here is PER
PAYMENT and therefore you should estimate your tax liability for next year and
then half it before entering the amount.
More information on reducing your payments on
account can be found on the link shared earlier.
#paymentsonaccount #julypayment #balancingpayment