Although most individuals in self-assessment focus on 31 January each year for paying their tax, those who also have payments on account will have a payment to make by the end of the month (31 July 2017), says Paul Haywood-Schiefer, Assistant Manager at Blick Rothenberg.
We asked him a few questions:
What is so significant about the 31 July?
"The 31 July is the due date for the second payment on account towards the tax year ended 5 April 2017."
What is a payment on account and who needs to pay?
"A payment on account is a pre-payment towards your tax liability, the payment due by 31 July 2017 is the second payment on account (the first should have been paid by 31 January 2017) towards the tax year ended 5 April 2017. It is only for those in self-assessment (i.e. completing Tax Returns) and it won’t be relevant for everyone in self-assessment. Those that typically should expect to be making a payment will be self-employed traders, those with rental income and those with large amounts of investment income."
How would I know if I was due to make a payment?
"When you completed your previous Tax Return, the calculation would show what payments were due for the year, but by now you should have received a statement from HMRC telling you what to pay. However, just because you don’t have one, doesn't mean that there isn’t a payment due. If you haven’t updated HMRC with a change of address or perhaps you have an agent to whom you have elected for your statements to be sent to are just a couple of the reasons why you might not have received anything. If you are unsure, you can contact HMRC on their helpline (have your unique tax reference ready), check online with them using your self-assessment login or contact your accountant (if you have one)."
What if I don’t pay on time?
"If you don’t pay on time, HMRC will begin to charge interest on the underpayment and shortly after that they will begin to chase you for payment."
Is there any way to reduce the amount due?
"Payments on account are based on the previous tax year’s income tax liability, so the payments are in fact an estimate that your income tax liability for one year is going to be the same for the next. In reality there are many factors which may affect a person’s income and cause it to fluctuate. Therefore, if you think that your income fell significantly in tax the year ended 5 April 2017 from the previous tax year, then you can request for the payment on account to be reduced. However, if your calculations turn out to be wrong when you submit your Tax Return and you have over reduced your payments on account, then HMRC will charge interest on the underpayment from the due dates (31 January and 31 July) to the date you make the payment to cover the shortfall of tax.
If the payments are right but you are struggling to make the payment, it may be possible to arrange a time to pay agreement with HMRC, but you will need to call them to do so. If you can’t pay at the moment, don’t ignore that payment is due, as HMRC will soon be chasing you for it and it is better to approach them to explain your circumstances."
Any other tips?
"If you really think that the payment on account is too high, you could complete your Tax Return before the end of this month and then you will know the exact position. Therefore, if you have got all the Tax Return information together, pass it on to your accountant or put some time aside and complete your Return yourself."