Self Assessment (SA) taxpayers have to make payments on account twice a year to HM Revenue & Customs (HMRC). The two dates are fixed and they are 31 January in the year of assessment and 31 July after the year of assessment.
The payments on account are half the previous year’s tax and class 4 national insurance (NIC) liability, after the deduction of any:
- Capital Gains Tax
- Tax deducted at source
- Underpayment transferred from PAYE
- SA Student Loan Repayments
Example – for the year 2012/13
Nigel’s total income tax and class 4 NIC for 2011/12 was £5000.
Payments on account for 2012/13 have been £2500 on 31 January 2013 (in the year of assessment) and £2500 on 31 July 2013 (after the year of assessment).
Nigel’s final income tax liability for 2012/13 has been calculated as £5200 and there is also a separate Capital Gains Tax liability of £1000. After taking into account the payments on account already made, a balancing payment of £1200 is due on 31 January 2014.
|2012/13 Income Tax & NIC||£5200|
|Less: payment on account 31 Jan 2013||£2500|
|payment on account 31 Jul 2013||£2500||£5000|
|Add: Capital Gains Tax||£1000|
|Balancing payment for 2012/13 due on 31 Jan 2014||£1200|
On the same date the first payment for 2013/14 is due, equal to half of the £5200 = £2600. So, the total payment due on 31 January 2014 is the balancing payment for 2012/13 of £1200 plus the first payment on account for 2013/14 of £2600 = £3800.
There are some exceptions when payments on account are not required:
- When the previous year’s total tax and class 4 NIC is less than £1000. The £1000 limit only applies to the tax return years 2008/09 onwards. For 2007/08 and earlier the limit was £500.
- More than 80% of the previous year’s liability was deducted at source. The definition of tax deducted at source for the 80% rule is the amount by which the tax actually deducted in the year and the tax due for the year which is coded out in a later year exceeds the amount deducted at source in respect of an earlier year.
It should be noted that payments on account for less than £1000 (from 2008/09 onwards) remain payable if a claim has been made to reduce the original payments on account.
The conditions for making a claim for reduced payments on account are going to be covered in Day 5.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
- Tax Return filing dates and penalties – Day 3 of 25 days of tax tips (abbeytaxblog.co.uk)