We are now over halfway through 2022 (unbelievable I know!), and the end of this month brings with it the deadline for self assessment second payments on account. So what are they, and do you need to pay?
Payments on Account (POAs)
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.
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.
So, as an example, if your 20/21 total tax bill was £4,000, you will be expected to make two POAs for the 21/22 tax year, each in the sum of £2,000. Then, when your actual 21/22 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.
When your 2020/21 self assessment return was completed and filed, it will have been advised to you (either by your accountant if you had one complete the return for you, or the online HMRC filing system when you filed it yourself) if any POAs were due. If you have an online account with HMRC, you can always login to this to check aswell.
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 £6,000 by 31st January 2022 (made up of your £4,000 21/22 liability plus your first 21/22 POA of £2,000). You would then pay £2,000 by 31st July 2022 in respect of your second POA. Any balancing payment for 21/22 would then be due by 31st January 2023, and so the cycle continues.
Do I still need to pay if my tax liability is going to be lower for 21/22?
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. If you have an accountant, it would be wise to ask them to work with you to calculate an estimate of the actual tax due so that this is not incorrectly underestimated.
If you POAs are paid late, HMRC will charge late payment interest, so with the deadline for the second POA less than 3 weeks away, if you haven’t already, make sure any second POA you may owe is paid asap!
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