As a bookkeeper, it’s important to help clients navigate the self-assessment tax system effectively. Self-assessment taxpayers typically pay their income tax liabilities in three instalments each year. Here’s a breakdown of how these payments work:
Payment Schedule
1. First Payment on Account: Due on 31 January during the tax year
2. Second Payment on Account: Due on 31 July following the end of the tax year.
3. Balancing Payment: Due on 31 January following the end of the tax year.
Calculation of Payments
The first two payments on account are each calculated as 50% of the previous year’s net income tax liability. For example, if your net income tax liability for the previous year was £10,000, each payment on account would be £5,000.
Adjusting Payments
If you anticipate that your income for the next tax year will be lower than the previous tax year, you can apply to have your payments on account reduced. This adjustment can be made using HMRC’s online service or by completing form SA303.
Exemptions
There are specific cases where you do not need to make any payments on account:
- If your net income tax liability for the previous tax year is less than £1,000.
- If more than 80% of your tax liability for that year has been collected at source.
Flexibility in Adjustments
Taxpayers and agents can make multiple claims to adjust payments on account. If your liability for 2024-25 is lower than for 2023-24, you can ask HMRC to reduce your payments. The deadline for making a claim to reduce payments on account for 2024-25 is 31 January 2026.
Increased Taxable Profits
If your taxable profits increase, there’s no requirement to notify HMRC immediately. However, be aware that your final balancing payment will be higher to reflect the increased profits.
Staying on top of these payments and making timely adjustments ensures compliance and helps manage cash flow effectively.
If you need assistance with self-assessment or any other bookkeeping services, feel free to get in touch.
Source: HMRC.