Welcome to CW Licensed Bookkeeper & Accountant
Welcome to CW Licensed Bookkeeper & Accountant
Demystifying Payments on Account: A Guide for Self-Employed Individuals
Introduction:
Understanding your tax obligations as a self-employed individual is crucial for maintaining financial stability. One aspect that often confuses taxpayers is the concept of 'Payments on Account.' In this guide, we'll break down the key aspects of Payments on Account, providing clarity and empowering you to manage your tax responsibilities more effectively.
What are Payments on Account?
Payments on Account are advance payments made towards your tax bill, including Class 4 National Insurance if you're self-employed. These payments are required twice a year unless specific conditions exempt you.
Conditions for exemption:
1. Your last Self Assessment tax bill was less than £1,000.
2. You paid more than 80% of the previous year's tax through methods such as your tax code or deductions made by your bank on savings interest.
Payment Frequency and Due Dates:
Each payment on account is half of your previous year's tax bill. The due dates for these payments are typically 31 January and 31 July. If you still have tax outstanding after making these payments, a 'balancing payment' must be made by 31 January of the following year.
Illustrative Example:
Let's say your tax bill for the 2021 to 2022 tax year is £3,000. You made two payments on account of £900 each in 2021. By 31 January 2023, you'll make a 'balancing payment' of £1,200 for the previous year and the first payment on account of £1,500 towards the upcoming tax year. Another payment on account of £1,500 is due by 31 July 2023.
Adjusting Payments on Account:
If you anticipate a lower tax bill than the previous year, you can request HM Revenue and Customs (HMRC) to reduce your payments on account. This can be done online through your account or by submitting form SA303 by post.
Checking and Managing Payments:
To keep track of your payments on account, sign in to your online account, navigate to your latest Self Assessment return, and select 'View statements.' Here, you can review payments made and those pending for your next tax bill.
Overpayments and Underpayments:
In case you overpay, HMRC will issue a refund. Conversely, if you underpay, interest charges will apply.
Conclusion:
Understanding Payments on Account is vital for effective financial planning as a self-employed individual. Regularly checking and managing your payments through your online account ensures you stay on top of your tax obligations. If your circumstances change, don't hesitate to adjust your payments accordingly, and remember, staying informed is the key to financial success in the self-employed realm.
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CW Licensed Bookkeeper & Accountant
07306-812321
Greenview Crescent,
TN11 9DR,
Tonbridge
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As proud members of the Association of Accounting Technicians, we are licensed and regulated under Licence Number 1005575. Your financial peace of mind is our unwavering commitment.