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Self Assessment & Tax Returns

Helpful information

Payments on Account

As a business owner or Director, there are many regulations and assessments you need to be aware of. One of these is Payments on Account. Payments on Account are advance payments made towards future tax – this is done through completing a Self-Assessment.

HMRC calculates your Payments on Account by looking at your tax bill for the previous year. When this is done, you are required to pay the amount in two instalments – this is designed to allow businesses to better budget for the payments. The dates for these payments are as follows – first payment on 31st January and the second payment on 31st July. These payments are split 50/50, for example; If you paid £6,000 in tax the previous year, your tax bill for the coming year would also be £6,000. Therefore, you would be expected to pay £3,000 on the 31st January and the remaining £3,000 on 31st July. Of course, as Payments on Account are estimations, there may be some difference at the end of the year. If your Payments on Account is more than your final bill, you will be entitled to a tax refund, likewise, if your Payments on Account is less than your bill, you will be expected to pay the difference.

Exceptions to Payments on Account

There are a small number of circumstances when Payments on Account is not required. For example, if your personal tax bill for the year before was less than £1,000 after PAYE, you will not be required to perform Payments on Account. Similarly, if more than 80% of your income the year before was taxed at source, you will also be exempt from Payments on Account. A qualified financial advisor will be able to help you work this out if you are unsure as to whether your business would qualify for this or not.

Your situation changes

Of course, it is very possible that after you have begun paying Payments on Account, your circumstances change, meaning the information you provided is no longer valid. If this happens, such as you change positions or your business forecasts for that year suddenly change significantly (either positive or negative) you advised to contact HMRC and inform them of such changes. This is recommended as it is highly likely your Payments on Account will change – meaning you will either be paying less or more. Informing them of such changes ensures that you will not be hit by a nasty sudden rise in payments at the end of the year.

How to pay

You have various options when it comes to making a Payment on Account – all of which are listed on the HMRC Self-Assessment form you are required to submit. The first important thing to remember is 31st January. This is the date by which you must submit your Self-Assessment tax form and pay and due personal tax. If you fail to meet this deadline, you may be subject to financial penalties from HMRC. Whilst there are many different ways in which you can pay this, you must ensure that whichever method you select you give enough time for the payment to go through before the deadline. As each method often has a different timescale, you need to make sure you select the best method for you. It should also be noted that HMRC no longer accepts personal credit card payments for Payment on Account, and you should therefore select one of the following accepted methods instead:

Debit card or corporate credit card

This method is popular because payments can be made the same day – making it one of the quickest ways available. You will be required to provide personal information such as your 10-digit Unique Tax Reference. However, you can not use multiple cards to pay the same type of tax – you can only use a different card if it is to pay a different tax – such as one card for Corporation Tax and a different card for Payment on Account.

Bank Transfer

Thanks to the internet, bank transfers can now be performed quickly and with minimum fuss. Entirely online, you can make payments through an app on via your phone. There are three types of bank transfer that you need to be aware of. BACS payments are conducted directly between the two banks involved and usually, take around 3-working days to go through. CHAPS payments are similar to BACS payments but essentially faster – with payments often going through the same day as long as payment is done inline with the bank’s processing time. Finally, there is Faster Payments. As the name suggests, this is considered the fastest method of Bank Transfer; with most payments being made the same day- regardless of being a weekend or Bank Holiday.

Direct Debit

HMRC allows both single payments to be made through Direct Debit. This method can take up to 5-working days to process, so you should, therefore, take this added time into account if you wish to submit payment this way.

Other methods

Other acceptable Payments on Account methods include sending a cheque directly to HMRC. Your cheque will take at least 3-working days to clear, and you must also add onto this how long it will take to arrive through the postal service. Most banks and building societies will also allow you make your payment over-the-counter in one of their branches – as long as you have the relevant identification, including your HMRC paying-in slip. If you pay using this method, HMRC will accept your payment the day you make it in the branch, and not what day they actually receive it.

Overseas Payments

If you are wishing to submit your Payment on Account from overseas, the process is very similar. However, you should take note that whilst overseas processing times have fallen significantly in recent years, it is highly likely that doing so will still take longer than from inside the UK. Therefore, if you are wanting to use one of the above payment methods from overseas, you are recommended on contacting your bank and asking about their process times so that you do not miss the deadline and open yourself up to a financial penalty from HMRC.

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