Self-assessment payments account is for self-employed individuals so that they can clear their tax bills. Often, self-employed individuals have some queries related to taxes and payments as their short on guidance and support, which employed people get from their employer and colleagues. But, you don’t need to worry as you have our back. This guide includes all the necessary details about self-assessment payments on account.
Table of Contents
- What is a self-assessment payment on account? How do they work?
- Who is liable to make self-assessment payments on account?
- How to make a payment on the self-assessment account?
- Common penalties for late payments on the self-assessment account
- Best ways to deal with payments on account
- Summing Up
What is a self-assessment payment on account? How do they work?
You need to make payments twice on the self-assessment payments account. The two payments are 50% each of your previous tax bill. The first advance payment for the current financial year should be made on 31st January, and the other half should be paid on 31st July.
For example:
Alex is a self-employed plumber. For his first year of business (2018/19), he must pay £2,000 in taxes to HMRC by 31st January 2020. He also needs to make payments on account for 2019/20. These are due on 31st January 2020 and 31st July 2020, and each instalment amounts to £1,000 (half of Alex’s previous tax bill of £2,000).
This means that on 31st January 2020, Alex is required to pay a total of £3,000.
In filing his tax return for 2019/20, Alex finds out his annual tax is £2,500. Since he has already paid £2,000, the outstanding amount is £500 on 31st January 2021.
Who is liable to make self-assessment payments on account?
You must make payments on the self-assessment account in case:
- Your previous Self-Assessment tax bill comes to more than £1,000
- You are not paying tax at source on more than 80% of your income
How to make a payment on the self-assessment account?
You can make the payment online at the time when you submit your self-assessment. In case you are filing your self-assessment tax return on paper, you will soon receive a Bank Giro form along with the paper bill. You can use these documents to clear your payment.
Common penalties for late payments on the self-assessment account
As per the HMRC, “the first late payment penalty is 5% of any tax unpaid after 30 days”.
“Where a balancing payment or payment on account is still unpaid more than 30 days from the due date for that year’s balancing payment, a late payment penalty automatically arises equal to 5% of the tax unpaid at that date.”
Best ways to deal with payments on account
- Check the payments account quite ahead of the deadline
If you check the payments tab a few weeks earlier than the last deadline, this will buy you some time to clear out any queries that you have with the HMRC. It is effortless to check the self-assessment return.
You just need to log into the Government Gateway account and select the option to view your latest Self-Assessment return from the tab. You cancel the previous payment you made to date on your account and the upcoming payment you need to make to clear your tax bill.
- Always save some money keeping the taxes in mind
If you are new to the club of self-employed people, you need to build a habit of keeping some amount of money aside to clear your tax bills. If you are unable to anticipate the tax amount, you can use the HMRC’s ready reckoned.
It is a reliable tool that can calculate the amount you need to set aside for clearing your self-assessment tax bill. It estimates the tax amount based on your weekly or monthly profit.
Summing Up
We understand that dealing with accounts and finance can be overwhelming, especially if you are self-employed and you don’t have colleagues and friends with whom you can discuss your doubts.
There are numerous accountants in east London who offer consultation services as well as outsource accounting. It is very beneficial for self-employed people as they can take the help of a remote account whenever they need to pay their self-assessment tax bill. You can even connect once in a while with the accountant to know the status of your self-assessment payment so that you can start saving for taxes accordingly.
