Payments on Account

Payments on Account (POA) can be a daunting prospect for anyone who has to file a personal tax return and can certainly be a shock to anybody who hasn’t previously had to make them.

Our continued commitment to make understanding tax easier has lead us to posting a quick debrief regarding the issue.

Concept

Payments on Account are an upfront payment from the taxpayer towards the following years tax liability. The idea is that once an individual is required to make payments on account it allows for a steadier payment of their personal tax as opposed to a big shock come the end of January.

Requirements

An individual who has a personal tax liability of over £1000 will be required to start making POA.

Unless more than 80% of their total tax payable is covered by deductions at source e.g. PAYE.

Amount

Two payments are required which each resemble 50% of the previous tax liability. If the tax liability in the following year is higher than payments already made, then a balancing payment will be required for the difference. If it is lower, then a refund will be issued.

Dates

POA consist of 2 payments one which is made on the 31st January & 31st July in the Calendar year following the end of the tax year.

Options

A claim can be made to reduce your payments on account if you expect your tax liability to be lower next year. However, if this turns out not to be the case then interest will be charged by HMRC.

Example

John Smith has just filed his tax return for 2017/2018 based on his self-employment income. He has a total tax liability for this period of £1200.00. He expects his income to increase slightly next year. He has not previously had to make payments on account.

2017/2018

Tax Liability for the year £1200.00               due by 31st January 2019.

1st Payment on Account £600.00                due by 31st January 2019.

2nd Payment on Account £600.00               due by 31st July 2019.

 

2018/2019 – Estimate

Tax due for the year £1400.00

Less Payments on account £1200.00

Tax Liability for the year £200.00                 Due by 31st January 2020.

1st Payment on Account £700.00                Due by 31st January 2020.

2nd Payment on Account £700.00               Due by 31st July 2020.

 

This is example is just to demonstrate the basics of how Payments on account works. If you have any further questions regarding your own tax payments, please contact the office for more explanation.

Further information is also available on the HMRC website.

https://www.gov.uk/understand-self-assessment-bill/payments-on-account

 

  • This blog is for information purposes only and D.H. Tuck & Co Limited cannot be liable for any decisions made based on the information published. Processes were correct as at the time of posting. Always seek professional advice when dealing with tax affairs.