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Self-assessment payments on account

13 June 2024

Self-assessment taxpayers are usually required to pay their income tax liabilities in three instalments each year. The first two payments on account are due on 31 January during the tax year and 31 July following the tax year end date.

Understanding the Payment Schedule and Calculation

Self-assessment taxpayers, who could be self-employed individuals or people with other income, usually make three yearly installments of payments to cover their income tax liabilities. This standard procedure is common among many.

The first two installments on account have due dates on 31 January during the tax year and 31 July after the tax year ends. Each payment on account equals 50% of the previous year’s net income tax liability. Your income and deductions determine this calculation.

The third (or only) tax payment has a due date on 31 January after the tax year ends. This date is the final opportunity to settle your tax dues for that year.


Options and Exemptions

If you expect your income for the next tax year to be lower than the previous one, you can reduce your payment on account. This feature can be helpful if your income fluctuates year by year. You can use HMRC’s online service or fill out form SA303 to do this.

Keep in mind, you don’t need to make any installments on the account if your net Income Tax liability for the previous tax year is less than £1,000 or if a source has collected more than 80% of that year’s tax liability. This exemption provides relief for those with lower income or those whose tax is mostly deducted at source.


Adjusting Payments and Handling Profit Increases

Taxpayers or agents can adjust payments on account by making unlimited claims. This flexibility allows for better financial planning. Each payment equals 50% of your previous year’s net income tax liability.

If your 2024-25 liability is lower than 2023-24, you can ask HMRC to reduce your payment on account. The deadline to reduce your 2024-25 payments on account is 31 January 2026.

Remember, if taxable profits rise, you don’t need to inform HMRC. However, the final balancing payment will be larger. Keep in mind that higher profits will result in a higher tax liability.

Source: HM Revenue & Customs Tue, 11 Jun 2024 00:00:00 +0100

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