Payment on account for Self Assessment is tax payments made by self-employed taxpayers twice a year. In order to spread the burden of the future year’s tax.
They are based on your tax bill from the preceding year. In other words, HMRC forecasts your future earnings based on your previous earnings. They are due in two instalments, with the first due on January 31 and the second due on July 31.
This means that the first payment is due on the same day you file your Self Assessment tax return and pay your bill for the previous year, so make sure you have enough money saved up.
How to pay your payment on account for Self Assessment?
When making a payment on account, you must provide your payment reference. This is your UTR number, followed by the letter ‘K.’
Here’s how to make a payment on account for your Self Assessment:
- using a debit card or a corporate credit card, online
- bank transfer (online or phone banking) or Direct Debit (allow enough time for a Direct Debit to be processed). It takes five working days the first time you put one up, or three the following time you pay using the same bank credentials.
- at your local bank or building society (if you still receive paper statements from HMRC, or you have the paying-in slip that HMRC sent you)
- via cheque through the post
Can you reduce payments on account?
If you believe your income for the upcoming tax year will be lower than the previous tax year. You may apply to HMRC to have your payment on account reduced.
You may lower your payment on account by going into your online HMRC account and selecting ‘Reduce payments on account. Alternatively, you may send the SA303 form to your tax office.
In reality, many individuals do this if they are having difficulty paying their tax payments. Some lower their HMRC payment on account. Assuming that they will be in a better financial situation later and will be able to repay the balance of their bill more easily.
But consider this carefully: if your income is the same or greater in the following tax year. You are still liable to pay the same amount. You have merely postponed the obligation.
And if you cut your payment on account, it later turns out that you have underpaid. You’ll be liable to pay interest on the outstanding amount. This has the potential to drastically raise your tax burden.
What happens if you overpay?
If you overpaid, you would get a payment on account refund from HMRC.
You have to use Form SA303 to lower your payments on account and receive a refund. Credit should then appear in your Self Assessment account, and you may seek repayment either online or by contacting HMRC.
If you have more questions, feel free to write to us or book a free consultation with one of our accountants. We will do our best to make the process easy for you.