What are payments on account and how do you know if you have to make them?
Emily Coltman, FCA is the Chief Accountant for FreeAgent, who make online accounting software for small businesses and freelancers.
Payments on account are the Income Tax and Class 4 National Insurance that many Self Employed people who file a Self Assessment tax return have to pay in advance for the next tax year.
You will be very likely to have to make payments on account if:
- your Income Tax and Class 4 National Insurance come to more than £1,000
- your income has not been taxed at source – for example, tax taken off employees’ wages through PAYE
Hi, I’m Emily Coltman, chief accountant to FreeAgent where we make online accounting software for small businesses.
What are payments on account? Well they are half of your tax bill that you have to pay in advance.
How are they worked out? Well you have to add up your Income Tax and your Class 4 National Insurance liability, and if that’s more than a thousand pounds, there’s a few other rules which we’ve outlined below, then you have to pay half of your current tax liability at the end of January and half at the end of July.
And that is on account for your next year, so it’s in addition to what you have to pay for this year.
That means the first time you make payments on account you will be paying one and a half times your tax liability at the end of January so make sure you’ve got the cash put aside.
FreeAgent can help you work out how much tax you’ve got to pay and when and you can file your tax return through FreeAgent so click the link above this video to find out more.
Thanks for watching and we’ll see you in the next video.Find out more about Self Assessment in FreeAgent