Understanding Payments on Account

21st March 2018

 

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

AND

  • 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



 
Other items in Blogs
 
Fiona Mann
22nd July 2019 Exam Success – World Beating Results!

  We’ve had some extraordinary exam results over the last few days – staff at Whiting & Partners have excelled themselves. Luke Bacon from St Ives office has achieved an outstanding result of 99% for the Financial Accounting and Reporting exam – coming joint first in the world.  This result has been recognised by the…

Read More »

Matilda Mawson
19th July 2019 Changes to Entrepreneurs Relief from 6 April 2019

Entrepreneurs’ relief allows a reduced rate of capital gains tax on disposals of all or part of your business assets. The reduced tax rate is 10% on up to £10 million of lifetime gains. There have been a number of significant changes to entrepreneurs’ relief in the last year, tightening the rules on qualifying conditions…

Read More »

Ernesta Petkeviciute
19th July 2019 New SRA accounting rules – what’s changing?

The current Accounts Rules are made up of over 40 detailed requirements, making it difficult for firms to fully understand what is required of them, as well as giving firms no flexibility to adapt them to their own practices and decide how best to look after client’s money.   The new rules coming into effect…

Read More »

Vanessa Pearson
15th July 2019 IR35: private sector off-payroll rules for contractors

This week HMRC have published draft legislation that will affect private sector personal services companies (PSCs)  from 6 April 2020. PSC’s supplying services to medium or large-sized organisations will no longer decide if they are employed or self-employed, the end engager will assess this. If caught by these rules, known as IR35, employment taxes and…

Read More »

Paul Jefferson
15th July 2019 Company car tax changes – Government will remove BIK company car tax on Electric Vehicles from 2020/21

The government has provided positive news for Company car drivers announcing that a pure electric vehicle (EV) will no longer pay benefit-in-kind (BIK) tax in 2020/21 following a review which looks set to boost sales of emissions-free cars. HM Treasury’s response to its review of the fallout from the roll-out of the Worldwide Harmonised Light…

Read More »

Barbara Nicholas
9th July 2019 31 July: Can you elect to reduce your tax payment?

Most individuals who are required to prepare and submit a self-assessment tax return to HM Revenue & Customs in each tax year should now be preparing for their next half-yearly tax payment which is due by July 31.   This tax is the second payment-on-account for the 2018/19 tax year. It is automatically calculated as…

Read More »