Can you believe it’s July already, how on earth has that happened?! And as we enter July, we also creep closer to the self assessment second payment on account becoming due. Have you paid yours?
So, what are Payments on Account, how are they calculated and do I need to pay them?
Payments on Account (POAs) are advance payments towards your next self assessment tax bill, which are calculated based on your previous year’s self assessment tax bill, with each POA will be calculated as 50% of that tax bill.
So, as an example, if your 19/20 tax bill was £5,000, you will be expected to make two POAs for the 20/21 tax year, each in the sum of £2,500. Then, when your actual 20/21 tax liability is calculated, you will need to either make a balancing payment for any additional tax due, or you will receive a refund if you have overpaid.
It is worth stating though that POAs are only required If your self assessment tax bill is over £1,000, and if you have already paid more than 80% of the tax owed (e.g. via salary taxed at source) then POAs will not be required.
If your accountant prepared your self assessment return for you, they will have advised you if any POAs are due. Alternatively, if you filed your return yourself, this will have been flagged to you when the tax was calculated. If you have an online account with HMRC, you can always login to this to check as well.
But I know my tax bill is going to be lower this year- do I still have to pay?
If you know that your next year’s tax bill is going to be considerably lower than your current year (for example, if you had a large one off source of income one year that will not be repeated the next), and therefore by paying the standard POAs you will greatly overpay the actual tax due, you can put in a claim to reduce your payments on account. However, we would always recommend that you exercise caution when doing this as if this results in you underpaying, HMRC will charge you interest on the underpayment amount, so if you have an accountant, we would recommend that you speak to them about calculating an estimate of your tax liability so you don’t reduce them down too much.
When are they due?
Your first payment on account will be due with your current year’s tax liability by 31st January. The second payment on account will be due by 31st July.
So, using the above example, you would have paid £7,500 by 31st January 2021 (made up of your £5000 19/20 liability plus your first 20/21 POA). You would then pay £2,500 by 31st July 2021 in respect of your second POA. Any balancing payment for 20/21 would then be due by 31st January 2022, and so the cycle continues.
With all this in mind, second POAs for the 20/21 tax year are due in less than a month, by midnight on 31st July 2021. So, don’t put it off, and make sure that payment is made before the deadline. HMRC will charge interest on any overdue POAs so get that second POA paid today!
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