It’s nearly that time: Second payment on account
If you’re self employed you may be due to pay your second payment on account by the 31st July. Hopefully this will not be a surprise for you!
Payment on account is basically a way of paying your tax bill off in advance. You pay your first installment on the 31st January, with any balancing payment due from the year before. Your second payment is then due at the end of July.
How do they work out payment on account? This is done from your previous tax bill; it will usually be split 50/50 across the two payments, so you will pay half in January and half in July.
This is assuming that you will make roughly the same income or more than you did last year. If you earn more and your tax bill goes up then you simply pay off the balancing amount on January 31st.
It may feel a bit unfair paying for a tax bill on money that you haven’t earned yet. Self-employment is not always easy to predict and income can fluctuate dramatically from year to year.
If you feel you are not going to make the same as your previous year then you can reduce your payment on account payments with the HMRC. You will need to explain why you are reducing your payments and can set a new amount that you intend to pay.
This is extremely helpful to those who, for whatever reason, are not seeing the same income as the year before. However, don’t be tempted to reduce your payments if business is maintaining or improving, as tempting as it is when you complete your next tax return you will still have that tax to pay and may end up with a bigger bill!
If you need some advice on your tax return take a look at our Top Tax Return Tips!
If you are unsure about your tax return or feel you are paying too much tax then book a free consultation to see how we can help.