Payments on Account (POA) tend to cause confusion for individuals submitting a Self Assessment Tax Return and may result in cash flow issues for some taxpayers. POA are payments which HMRC require in advance for the current tax year, based on the liability in the previous year.
You will have to make POA if you meet both of the following criteria:
- Your Self Assessment tax bill is greater than £1,000
- Less than 80% of your income tax liability is deducted at source (through PAYE)
Those who fall into POA will have to make two payments; one on 31 January and the other on 31 July. Each POA is half of the prior tax year’s income tax and any Class 4 NIC liability (but not your Class 2 liability).
Any balance remaining after deducting the POA already made will be due by 31 January following the end of the tax year. For example, in January 2019 and July 2019 individuals will be making payments on account for their 2018/19 tax liability, with any balance payable by 31 January 2020.
As your POA are based on your prior year’s tax and Class 4 National Insurance liability, you may sometimes over-pay tax through your POA if your liability fluctuates. If you are certain that your taxable income is going to decrease in the following tax year, then we can request to reduce your payments on account through your tax return, a form SA303 or through HMRC’s online system. However, please be aware that if your payments on account are over-reduced, then HMRC will charge interest on the underpaid tax.
For further information, please speak to your usual contact at Whiting and Partners or visit https://www.gov.uk/understand-self-assessment-bill/payments-on-account