If you are in the self assessment tax system then you may be due to pay your second payment on account for the 2018/19 tax year by 31 July 2019. However many people are not aware that you may not need to pay it all or indeed, any of it.
Firstly, what is a payment on account? Payments on account are advance payments towards the following year’s tax bill. The system is intended to split your tax bill over two payments, one in January and the second in July, which for some may be easier than making a single large payment once a year. You have to make two payments on account every year unless your last Self-Assessment tax bill was less than £1,000 or you’ve already paid more than 80% of all the tax you owe, for example through your PAYE tax code.
As self employed incomes are not fixed, it’s possible that this year’s profits could be lower than last year’s, this is particularly likely if you have invested in new equipment for your business during the year. If you believe this year’s taxable profits will be lower than last year, you can apply to reduce your payments on account. In order to do so you need to know your 2019/20 taxable profits and tax amount due or have a reasonable estimate.
You must tell HMRC if you want to reduce your payments on account. If you simply pay a lower amount to HMRC, their systems will show that there is still an amount outstanding and they will contact you for payment.
Any reduction made now will be applied to both payments, which could mean you have paid too much in January. Any over-payment can be offset against your July payment, reducing it even further, or it may be refunded to you.
But be warned, you should only reduce your payments on account if you’re sure your tax will be lower than last year. If you reduce them too much, you will face interest charges and end up paying more to HMRC. The best way to ensure this doesn’t happen is to be certain of your figures and future tax liabilities by having your accounts prepared as close to your financial year end as possible. If you reduce your payments on account by too much, HMRC could also issue you with a penalty if HMRC believe your claim was fraudulent or negligent. Therefore you should not reduce your payments on account for the sole reason of not being able to afford to pay. If you are having difficulty paying your tax bill, you should discuss this with us or contact HMRC as soon as possible to discuss a time to pay arrangement.
Payments on account can be made via HMRCs online system and you will need your Unique Tax Reference number to make your payment. Please note that HMRC no longer accept payment from personal credit cards. You should contact us if you need assistance or advice.