A quick recap first
I often get asked ‘how do I reduce my payments on account?’ Under Self Assessment, you have to make payments on account (which are advanced payments towards your final tax and National Insurance liability/bill), when your previous year’s Self Assessment bill was £1,000 or more, unless more than 80% of your tax liability is deducted under PAYE.
Payments on Account are often abbreviated to POA by the way.
There’s more helpful info including a worked example on HMRC’s site here
2018/19 Payments on Account
So the Self Assessment return for the 2017/18 tax year was due by 31 January 2019.
And tax liability for 2017/18 determines whether payments on account are due for 2018/19.
How are they calculated?
Each payment on account is 50% of the previous year’s Self Assessment tax and, for the self-employed, Class 4 National Insurance liability.
Class 2 National Insurance is not taken into account in working out the payments on account by the way.
When are they due?
Payments on account are due by 31 January in the tax year and 31 July after the end of the tax year.
Any final adjustment is made by 31 January after the tax year once the Self Assessment return has been filed.
What if i’ve paid too much?
In this case, the excess is refunded or set against the following year’s payments on account.
You can contact HMRC here, about getting any overpaid tax refunded asap.
How to reduce your payments on account
If you know that your tax liability for the current year is going to be less than the previous year, you can apply to reduce your payments on account.
This could be the case if:
- You’re not trading as much, working as much etc
- You’ve lost a major customer
- Your expenses have increased substantially, meaning your profit if substantially lower
You can apply to reduce the payments on account by logging into your HMRC online account.
See here for a step by step guide from HMRC themselves.
What should I reduce it to?
Until you’re ready to file your current year’s tax return it’s essentially a bit of guess work as to what your payments on account should 100% be.
So beware that if you reduce the payments on account too much, and tax is owed on top, HMRC will apply a small amount of interest.
Disclaimer: If you are in any doubt about what you can and cannot claim for, it is important that you contact an accountant or relevant tax specialist who can give you bespoke advice directly relevant to your circumstances.
None of the information given here is tax advice.