Starting a new business? Get 40% off our accountancy services for 3 months! 😀

x

Payment on account means making advance payments towards your Self Assessment income tax and Class 4 National Insurance Contributions (NICs). If you complete a Self Assessment tax return and owe more than £1,000 in tax, then you’ll make a payment on account towards the following years’ tax bill.

Do I need to make payments on account?

You will make two payments on account each year if:

If you fall under these categories, you will need to make payments on account.

How do I work out payments on account?

Each payment on account is half of your tax bill from the previous year. Watch our video below, which explains how to work out payments on account, or carry on scrolling for an example of payments on account in action.

 

 

 

Payments on account will always be more of a financial burden the first time you pay them. Let’s look at a business that owes £1,000 in tax in their first year, and £1,500 in the second.

The first tax year ends 5th April 2019 and £1,000 tax is due before 31st January 2020. Payments on account will also be due towards the 2020-21 tax year, because HMRC assume you will owe an identical amount the following year.

The first half is due before 31st January 2020, and the second would be due before 31st July 2020. It means that you’ll pay:

In the tax year ending 5th April 2020 the business owes £1,500 in tax, but £1,000 of this has already been paid. The first payment due in January will be £500 plus the first payment on account (for the 2021 year) of £750. That’s a total of £1,250 in January 2021 and the second payment on account of £750 due in July 2021.

 
Tax return services

Payments on account and cash flow

Payments on account can be a problem for cash flow if your business profits drop. This is because you are paying more than you will owe towards a future year.

HMRC do allow you to reduce your payments on account if you think this is likely to happen. Just be careful that you don’t reduce them too much, though! If you underpay then HMRC will demand the difference straight away, and you may have to pay interest on top.

Are payments on account a requirement?

If you fit the criteria to make payments on account, you must pay. There are, however, some ways to reduce them.

You can apply to reduce your payments on account if you know your tax and Class 4 NI will be lower next year. You may know this if you’ve lost a large client, for example, or if you pass State Pension age.

Struggling with your own payments on account? Get in touch with our team on 020 3355 4047 or speak to us on Twitter or Facebook. You can also request a free call back.

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

More posts by this author
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

Umbrella Companies for Self-Employed Contractors

When you set up in business as a contractor you might either work as a sole trader or as a limited company….

Read More

Get Ready for Small Business Saturday UK 2022

Small Business Saturday started in the US in 2010, on the first Saturday following Thanksgiving. It aims to encourage shoppers to consider…

Read More

Architects and Tax

Architecture is a highly diverse sector when it comes to tax. It’s partly down to the type of businesses that carry out…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?

Yes
No

Call us on 020 3355 4047 if you’re not sure.