What are payments on account?
If you are a self-assessment taxpayer, you may be familiar with the phrase ‘payments on account’ (POA). They help to spread the tax burden over the space of a year by requiring the taxpayer to make advance payments towards their tax bill.
31 July 2023 – 2022/23 2nd payment on account
Payments on account are advanced tax payments based on the previous year’s tax liability and are payable in two instalments on 31 January and 31 July.
The second payment on account for 2022/23 is due for payment at the end of this month (July 2023).
You should ensure payment is made on the due date as HMRC will charge interest on any amounts unpaid on 31 July.
The current rate of interest (from 11 July) is 7.5% and will continue to accrue daily until the tax is paid.
Penalties such as 5% surcharges are not generally levied on payments on account.
Background to payments on account
Self-assessment taxpayers who had a 2021/22 tax liability of £1,000 or more and untaxed income sources, are required to make payments on account for the tax year 2022/23.
There are two equal payments required and total the tax liability for the 2021/22 tax year. Such payments are regarded as advance payments of tax and are due on 31 January 2023 and 31 July 2023. The first of these payments should have already been paid with any outstanding tax due for the year 2021/22.
These advance payments are aimed at reducing a taxpayer’s final tax liability becoming due in January 2024.
If your income has decreased from that received in 2021/22 there is scope to make a claim to reduce these payments by assessing the likely income for 2022/23 and calculating the potential tax chargeable.
You need to be aware that should you underestimate your income which leads to reducing the advance payments too low, you will be charged interest on the shortfall from the date when the tax was due i.e. 31 January and 31 July. HMRC can also charge additional penalties against anyone who consistently reduces their payments on account without good cause.
Of course, the easiest way to ensure your payments on account are necessary is to have your tax return prepared early at which point your July payment can be adjusted accordingly.
Unpaid 2021/22 balancing payment, due 31 January 2023
Self-assessment taxpayers with a 2021/22 balancing payment, which was due for payment by 31 January 2023 but remains unpaid without an agreed payment plan in place, should also be aware that unless this payment is paid in full by 28 August 2023, HMRC will charge them the 2nd of a possible 3 late payment surcharge penalties at a rate of 5%.
Need further support?
For further help and assistance with payments on account, or the preparation of your tax return to establish the scope of reducing your payments on account please contact our friendly and professional tax compliance team.