Understanding Payments on Account for Tax in 2024
Posted on 14th June 2024 at 10:06
With the tax return season in full swing, many people ask: what are payments on account, and why do I need to make them? Here’s a clear breakdown:
What Are Payments on Account?
Payments on account are advance payments towards your tax bill. When you file a personal tax return, it covers the tax year ending on April 5th. Any tax due must be paid by the following January 31st. For example, for the tax year ending April 5th, 2023, your tax is due by January 31st, 2024.
Who Needs to Pay Them?
If your tax bill exceeds £1,000, HMRC requires you to make payments on account. These prepayments towards your next year’s tax bill are based on the assumption that you will owe a similar amount. You pay 50% of the previous year’s tax by January 31st and the remaining 50% by July 31st. For instance, if you owed £1,000 for the tax year ending April 5th, 2023, your payments would be:
January 31, 2024: £1,000 (current tax due) + £500 (first payment on account) = £1,500
July 31, 2024: £500 (second payment on account)
Exceptions
Certain situations exempt you from making payments on account, even if your tax bill exceeds £1,000:
PAYE Deductions: If more than 80% of your tax is deducted at source through PAYE.
Tax Bill Under £3,000: If your tax bill is below £3,000 and you opt to have it deducted via your PAYE code.
Impact on Future Tax Payments
The payments on account reduce your next year’s tax bill. If your income remains steady, these advance payments help to smooth out your tax liabilities, making it easier to manage your finances.
Future Adjustments
If you expect a decrease in income or an increase in tax deductions at source, request to reduce your payments on account. Accurate estimates are crucial to avoid underpayment penalties and interest charges from HMRC.
Key Tips
Early Filing: Submit your tax return early to better manage your payments on account.
Accurate Forecasting: Ensure your estimates are accurate to avoid interest and penalties.
Financial Planning: Regularly forecast your tax liabilities to prevent surprises and ensure you have sufficient funds to meet payment deadlines.
Need Professional Assistance?
Navigating tax payments can be complex. Riverview Portfolio is here to help. Our experienced tax professionals guide you through each step, ensuring compliance and helping you plan effectively. Contact us at Riverview Portfolio for personalised tax support and advice.
📞 01249 816810
Tagged as: UK Company Law
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