Thousands of self-employed workers have just days to pay the second installment of their tax bill.
Self-employed workers must make their second “payment on account” to HMRC by 11.59pm on July 31 or risk being charged interest at 7.5% on the amount owed.
Payments on account are two advance payments that most self-assessed taxpayers must make each year when settling their tax bills. These payments are made on January 31, and at the end of July and are an estimate of the tax you owe.
The payments are usually based on half of your previous year’s tax bill, but you can apply to lower them if you think your tax bill will be substantially lower.
Adam Park, tax specialist at Zest R&D, said “It’s important to remember this date, as it can be overlooked amidst the gap between the initial self-assessment tax return and the second payment on account deadline.”
Adam warned “For self-employed individuals, this date can pose a considerable financial challenge, particularly considering the current economic climate. It is essential to remember that these payments are compulsory, and failure to meet the deadline will lead to interest charges at 7.5% starting from August 1st.”
It is mandatory for taxpayers to make payments on account every year, except for those whose last Self Assessment tax bill was less than £1,000 or who have already paid more than 80% of their total tax liability.
The interest is always 2.5 percentage points higher than the Bank of England base rate, which currently sits at 5% but could rise again next month.
To determine the correct payment on account, individuals can utilise the HMRC tool, which provides guidance on the amount owed. For those facing financial constraints, there are several options available:
Apply to Reduce Payment on Account
If taxpayers anticipate a lower tax bill than the previous year, they can request a reduction in their payment on account through the Government Gateway or by completing a paper form and sending it to HMRC. However, caution should be exercised, as underpayment may result in interest charges on the outstanding amount.
Check for Refunds
If individuals have overpaid in any of the last four years, they can correct their tax return and may be eligible for a refund. For those within 35 days of the payment on account due date, HMRC may adjust the payment instead of issuing a refund.
Reach Out to HMRC
Taxpayers facing difficulties in meeting their tax obligations should contact HMRC and inform them of their situation. In certain cases, HMRC may agree to a “Time to Pay” arrangement, allowing individuals to spread their payments. However, it’s important to note that interest may still be charged on the outstanding amount.