Mastering Payments on Account: A Guide for Self-Assessment Taxpayers
Navigating Self-Assessment and payment on account can be difficult to understand. Often, individuals feel overwhelmed which can then make it even more confusing.
But that’s why Essendon Accounts and Tax are here to help. We want to clear up any confusion when it comes to payments on account and help make sure you don’t overpay in interest or late payment penalties.
Payments on Account for Self-Assessment Tax Payers
Payments on account refer to advance payments made towards a taxpayer’s Self-Assessment tax bill for the upcoming year.
HMRC estimates the tax owed based on the previous year’s tax bill and divides it into two instalments. This process is designed to help taxpayers stay on top of their payments and avoid tax arrears. However, the actual tax bill may differ from the estimate, as business income typically fluctuates from year to year.
If the payments on account do not cover the entire tax bill for the year, an additional balancing payment must be made. The two deadlines for paying Self-Assessment tax are midnight on 31 January and 31 July.
Taxpayers are required to make payments on account to HMRC, except those who fall into either of the following categories; their previous Self-Assessment tax bill was less than £1,000 or 80% or more of their tax was deducted through PAYE.
How and When to Make Payments on Account
There are several ways to make payments on account, such as online banking, CHAPS, pay online, pay at your bank, Bacs, and cheque through the post.
A direct debit with HMRC can also be set up, and a Budget Payment Plan can be established for regular payments.
If the payments on account exceed the actual tax bill, a refund is issued. However, if the taxpayer underpaid, interest is charged on the outstanding amount.
Payments on account can be reduced if the taxpayer expects their tax bill to be lower than the previous year, but caution must be exercised as reducing payments can lead to underpayment, resulting in interest charges.
Final Thoughts: Payments on Account for Self-Assessment Tax Returns.
We all know that Self-Assessment payments on account can be a real minefield. Understanding how much to pay and when can be difficult.
For further support or advice when it comes to Self-Assessment tax returns contact the team at Essendon Accounts and Tax today.
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