This article was first published on 21 July 2015 and last updated on 28 July 2016
31st July, one of the key payment dates for making ‘payments on account’ is fast approaching. If you were told by HMRC that you have to make payments on account in respect of your 2015/16 tax bill, here’s what you need to know.
What are payments on account?
Each tax year, HMRC requires certain business owners to make payments towards the following year’s income tax and class 4 National Insurance in two instalments known as ‘payments on account’. Class 2 NI payments do not count towards payments on account.
If you are required to make payments on account, the amount you have to pay each time is half of your previous year's tax and class 4 NI bill. So if your tax bill for 2014/15 was £1,500, then each payment on account you’d need to make in respect of your 2015/16 tax bill would be £750.
Who has to make payments on account?
Payments on account can apply to you if you’re a sole trader, a director of a limited company or a partner in partnership. You will have to make payments on account if:
- you are a UK taxpayer
- your previous year's tax bill was £1,000 or more
- less than 80% of your income tax is paid at source (this means the tax is deducted from your income before you receive it)
When do I have to make each payment?
Payments on account are due twice each year, on the following dates:
- 31st January
- 31st July
Our glossary entry provides a full explanation of how the payment dates work and how payments on account are calculated.
How do I make the payments?
There are several ways you can make payments on account to HMRC - the options are listed here. Whichever payment method you choose, you need to make sure that the money is with HMRC by the 31st July deadline.
What do I have to pay by 31st July?.
If you are required to make payments on account in respect of the 2015/16 tax year, you should already have made one such payment by the 31st January deadline. You will owe the same amount on account by 31st July.
If you’re unsure how much you owe, you can find out by logging in to your online HMRC account and viewing your Self Assessment statement. Select ‘view statements’ to see how much you’ve already paid on account and how much you need to pay by 31st July.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.