If you run your own business, completing your HMRC tax return is unlikely to be your favourite activity. It’s hard enough submitting a correct return at the right time, let alone trying to understand the payment on account process. Have you remembered that 31 July is the deadline for paying your 2nd payment on account instalment?
Payment on account can be tricky to understand. It is worked out on the basis of your previous year’s tax bill, HMRC assume you will owe the same amount each year. If your tax bill is less than £1,000, you pay the tax due for that year and nothing else. When you first go over the £1,000 threshold, you will be asked to pay your tax bill that year by 31st January, along with half of that amount, which is your payment on account towards the following year’s tax bill. The 2nd half of this payment is due on 31st July.
This is tough the first year you owe over £1,000 in tax as you effectively pay your bill twice – a bitter pill to swallow! However, in subsequent years, the tax bill due by 31st January is your tax liability for that year, LESS the payment on account that you made last year, plus half of this year’s tax bill as a payment of account towards next year’s bill, and so on and so on!
The system works best when your tax bill is roughly the same each year, then you are simply paying your bill in two instalments a year in advance. If your following year’s tax bill is less and the payment on account you made was too high, you will be refunded.
Hopefully, the payment on account system won’t be new news to you and you’ll be fully prepared for your 31st July payment, but if you’re now screaming ‘help’ at the screen, give the friendly team at CJ Bookkeeping a call on 07968 292250 or email firstname.lastname@example.org and we can carefully steer you through the process.