Since 9th January 1799 when income tax was introduced by William Pitt the Younger to help with the cost of the war with Napoleon Bonaparte, we have all had to pay income tax. The deadline for filing your online Self Assessment tax return for the year ending 5th April 2017 is midnight on 31 January 2018.
Payments on account are the advanced payments towards your tax bill, paid by self-employed people twice a year, with the deadline dates being 31st January and the 31st July. These have to be paid unless your tax bill is under £1000, or you have already paid 80% of the tax you owe, either through your bank deducting interest or through your tax code.
The self-assessment payment is split between two payments based on your last years’ tax bill, and each payment is half of that bill. At the end of the tax year if you have a higher tax liability than you have paid by your payments on account, you will need to make a balancing payment by midnight on the 31st January of the next year.
On the 31st January 2018 you need to pay any tax you owe for the tax year ending 5th April 2017 (known as balancing payment) and your first payment on account for the new tax year. Payments can be made by a variety of means, but they have to be received by midnight of the deadline date in order to avoid being charged a penalty; if you do not pay by this deadline you will incur a penalty, which can only be appealed against if you have a reasonable excuse.
The time your payment takes to clear depends on the method you have paid by.
Same or next day
- online or telephone banking
- debit or credit card online
- at your bank or building society or the Post Office
3 working days
- Direct Debit (if you have one set up with HMRC)
- By cheque through the post
5 working days
- Direct Debit (if you haven’t set one up with HMRC before)
For further information on how to pay follow this link to the HMRC website.
Reducing Your Payment on Account
Self-employed income can fluctuate from year to year and if you think you will make less money this year than the previous year, you can apply to have your payment on account reduced. This can help you avoid overpaying tax and free up your money, rather than waiting for a refund when you can least afford it.
However, some people try and reduce payments to help improve their cashflow believing that when the final bill comes through they will be in a better position to pay. You need to think carefully about this as you are basically just delaying the inevitable and you will have to pay interest on the underpayment.
The S4B team
S4B are a firm of Chartered Accountants based in Maidenhead who specialise in helping to seek opportunities to reduce tax liabilities. Contact us at email@example.com or call us on 01628 623444 to see how we can help you.