What is a second payment on account?
The second payment on account
is a vital aspect of the UK tax system. It's a way for self-employed individuals to pay their tax liabilities in two instalments, helping to spread the financial burden. Due on July 31st, this payment contributes towards the upcoming tax year's liability.
For example, if you made your first payment on account in January, you'll make the second payment on account in July. This way, you're paying towards the tax you'll owe for the current tax year based on your previous year's tax liability. The second payment on account is an upfront instalment made towards the tax liability for individuals whose prior tax bill exceeded £1000.
How do you calculate payment on account?
To determine the correct amount for your second payment on account, you'll need to complete a Self-Assessment tax return. Self-Assessment is an annual process where you report your income, expenses and calculate your tax liability. This helps HMRC (Her Majesty's Revenue and Customs) assess your tax position accurately.
The HMRC assumes that the your tax liability is roughly the same year on year. Therefore, the payments made on account will collect an amount equal to the previously years tax liability. Meaning The Second Payment on account is 50% of your previous year's tax bill.
If you're new to Self Assessment, don't worry! HMRC provides comprehensive guidance and resources to help you understand the process. You can find step-by-step instructions and valuable tips on their official website. Additionally, there are online accounting software options available that can simplify the process for you.
You also need to submit a Self-Assessment if you are a director and receive dividends or have a significant income from saving, investments, or renting a property.
Can I reduce second payment on account?
The amount you pay in July is usually 50% of your previous year's tax liability. However, keep in mind that this may not accurately reflect your current tax liability. If your you're earning significantly less, you can request a reduction in your payments on account. This can help prevent overpaying and potentially result in a refund.
The best way to have an accurate payment on account is to submit your Self-Assessment right after the end of your financial year. If you haven't, and your income is not the same as in the previous year, do it now and than contact HRMC and explain why you feel your Second Payment on Account should be reduced.
Do you get payments on account back?
Once you submit your Self-Assessment, the overpayment will be processed and your tax liability will be reduced by the overpayment.
You can choose to leave the overpayment with HRMC and put them towards you next tax bill or receive it by cheque or ban transfer.
How to make second payment on account?
If you are looking to make your payment on account, head to
HRMC Services and use your Gateway ID and password to log into your account.
Check all the information in your account is correct and choose how you want to pay your tax bill. Remember it can take up to 3 working days for your funds to reach HRMC, so give yourself plenty of time before the deadline.
If you need any help contact us and we can help you.
What happens if you can't pay second payment on account?
If you can't afford to pay your tax bill in full, you may be able able to
set up a payment plan
to pay it in instalments. HRMC calls it a "Time to Pay" arrangement.
You may be able to set up a payment plan online, or speak to an adviser, depending on which type of tax do you owe and how much.
Small Business Tips for Managing Payments on Account:
- Stay organized: Keep track of your income and expenses throughout the year, as accurate records are vital for calculating your tax liability. Maintain a system that allows you to easily monitor your financial transactions, such as using accounting software or engaging a bookkeeper's services.
- Make a tax pot: Plan ahead and set aside at least 20% funds for your tax payments of, including the second payment on account. By incorporating tax obligations into your Budget, you can ensure that you have sufficient funds available when the payment deadlines approach.
- Embrace technology: Utilize accounting software or apps that automate calculations and help streamline your bookkeeping processes. These tools can save you time, minimize errors, and provide you with a clear overview of your financial situation.
- Regularly review your finances: Keep a pulse on your business's financial health by regularly reviewing your income, expenses, and profits. This allows you to make informed decisions and identify any potential issues or opportunities.
Avoiding Penalties and Interest:
Missing the deadline for your second payment on account can result in penalties and interest charges. It's crucial to mark your calendar and make the payment by July 31st to avoid unnecessary fees. Set reminders or consider setting up automatic payments to stay on track.
Remember, staying compliant with tax regulations not only helps you avoid penalties but also contributes to the smooth operation and growth of your business. By maintaining accurate records, seeking professional advice when needed, and staying proactive in your tax planning, you can navigate the July deadline with confidence and peace of mind.
Final thoughts
The second payment on account can seem daunting, but with the right understanding and proactive approach, you can tackle it like a pro. Remember to complete your Self Assessment tax return, calculate your payment accurately, seek guidance from local professionals, and implement small business tips to manage your tax obligations effectively. By staying on top of these important tasks, you can navigate the July deadline with confidence and peace of mind.
Remember, the tax doesn't have to be overwhelming. Stay informed, ask for help when needed, and focus on running your business smoothly. With the right support and knowledge, you'll conquer the second payment on account and stay on track towards financial success.
Note: While this blog provides general information, it's important to consult with a qualified tax professional or accountant for personalized advice regarding your specific tax situation.
