If you’re self-employed in the UK, you may be required to make payments on account (POA). What is payments on account? In this blog we’ll explain what payments on account is and what you need to do as a self employed taxpayer.
What is Payment on Account?
Payments on account (POA) are tax payments made twice a year by self-employed, self assessment taxpayers. This is to spread the cost of your upcoming year’s tax. HMRC calculate payments on account based on your previous year’s tax bill. Basically, HMRC make a prediction about your future income based on your past income. They’re due in two instalments and the deadlines are 31 January and 31 July.
You have to make two payments on accounts every year. Unless, your last self assessment tax bill was less than £1,000 or you’ve already paid more than 80% of all the tax your owe.
HMRC has designed payments on account (POA) to help self-employed people to stay on top of their payments. Employed people are taxed at source through PAYE. The self-employed don’t pay their tax bill until the January after the end of the previous tax year.
Payments on account can catch newly self-employed people out. After the annual rush to complete your self assessment tax return, it’s not fun to be presented with a tax bill that’s a lot higher than you were expecting.
How to pay your payment on account
When you’re ready to pay your payments on account you’ll need to use your Unique Tax Reference (UTR) as a payment reference, followed by the letter’k’. Below are a few ways you can pay your self assessment payment on account:
- Online using a debit or credit card.
- Bank transfer (online or phone banking).
- At your bank or building society (if you still get a paper statement or you have the pay-in slip HMRC sent you).
- Direct Debit – make sure you leave enough time for a direct debit to go through. Five working days the first time you set one up or three the next time you pay using the same bank details.
As mentioned you’ll need to make your first payment on account by 31st January. You’ll then have to remember to make your second payment on account by 31st July.
Can you reduce payments on account?
It doesn’t matter what industry you work in, all self employed people’s income can fluctuate from year to year. If you think that your income for the next tax year will be lower than your previous year, you can apply to have HMRC reduce payment on account for your business.
You can reduce payment on account by logging into your online HMRC account and clicking ‘reduce payment on account’. Or you can send SA303 form to your tax office.
Many people choose to do this if they’re having trouble paying their tax bill. But you should think carefully about this. If you’re income is the same or higher in the next tax year, you’ll still have to pay the same amount. This means you’ll only be delaying the burden.
What happens if you over pay?
On the other hand, if you overpay, you’ll receive an HMRC payment on account refund. You can use form SA303 to reduce your payments on account and request a refund. Credit should then show up in your self assessment account. You can then request this to be repaid either online or by calling HMRC.
How to check payment on account?
You can check your payments on account, anytime, by logging in to your personal tax account, using your government gateway ID. Once logged in, select the option to view your latest self assessment. Click ‘view statements’ and you’ll see any payments on account you’ve already made. You’ll also see any payments on account you need to make towards your next tax bill.
Paying your tax weekly or monthly
If you’re struggling to pay your tax bill in one lump sum you can set up a Budget Payment Plan with HMRC. This allows you to make regular monthly or weekly payments towards your next tax bill.
The amount in your Budget Payment Plan will be used against your next tax bill. This means you’ll have less to pay at the payment deadline. Setting up a Budget Payment Plan may be a good idea if you find it difficult paying two lump sums per year.
HMRC also have an app you can download and use to find out information about your tax and more. You can use the app to check things like checking how much self assessment tax you owe or to check your details are correct. Things like national insurance number, UTR (Unique Taxpayer Reference) and your personal details.
If you are confused about your tax bill or have any questions about payments on account (POA) give us a call.