If you earn anything outside of PAYE, you may need to make two payments on account every year.
The first of these is due by 31 January – and it’s the one that people tend to remember. After all, at this stage in the year you’re thinking more about tax as you submit your Self Assessment.
By summertime, however, tax can feel like a distant memory – which is why a lot of people forget about their second payment on account due in July.
The deadline for this tax debt is fast-approaching. Here’s what you need to know.
When do I need to make the payment and why?
All second payments on account are due by 31 July. It might seem unfair that you have to pay the taxman again when you’re trying to sort your summer holidays, but there’s a logic behind it.
Payments on account are essentially advance payments towards your next tax bill – and these are calculated based on how much you paid the previous year. HMRC split this debt into two, normally equal instalments six months apart from one another (January and July) – creating a pair of lower bills rather than one big one. A £10,000 tax bill for the previous year, for instance, would result in two £5,000 payments on account. They will need to be made by midnight on 31 January and 31 July.
The only instances where you won’t need to make any payments on account are if your last Self Assessment bill was below £1,000 or if over 80% of your annual tax bill is deducted at source, such as from employment. For example, if your total tax bill for the year is £10,000 and you have already paid £8,200 via your salary then, whilst you will need to pay the outstanding £1,800 by 31 January, you will not be required to make any payments on account.
How do I make my second payment on account?
Currently, you can make your second payment via postal cheque, the HMRC online portal, or tax software.
If your earnings change and you believe you owe less tax this year, you can reduce your payments on account by contacting HMRC to let them know.
It’s important to get your calculations correct too. Pay too little, and HMRC will charge you interest, and may even issue penalties if you continue to delay making up your debt. Pay too much, and you’ll eventually be awarded a refund – but you might be forced to wait some time to receive it.
Keep on top of your tax obligations with GoSimpleTax
There are a lot of different tax debts to remember when you earn money outside of PAYE, and the best way to stay on top of everything is by using GoSimpleTax software.
With GoSimpleTax, you can keep track of your tax bill payments and ensure you put enough money aside for the summer as well as the start of the year – calculating correctly to repay exactly what you owe.