12 July 2018
With the recent heatwave the last thing on most people’s minds is tax. However, whilst enjoying the good weather it is important not to forget that the second payment on account for the 2018/19 tax year is due by 31 July.
Payments on account are advance payments towards your tax bill. These are payable by 31 January and 31 July. You are not required to make payments on account if your tax liability for the last tax return was less than £1,000 or you have already paid at least 80% of your tax at source.
Each of the two payments is half of your previous year’s tax liability, excluding any capital gains tax. The balance of the tax liability is then payable by 31 January. If your tax liability remains the same, then you will have no balancing payment.
The problems arise when there is a large change in your tax liability. No-one wants to discover at the last minute that they have a large balancing payment as well as an increased payment on account due in January. Likewise, no-one wants to overpay HMRC!
The easy solution to this is to get your tax return in early. If you submit your tax return before July, you can reduce your payment on account if your tax liability has reduced. Likewise, if you find you have a larger tax liability you can plan for this.
Late payments on account will attract late payment interest as soon as they are a day overdue. The interest rate is currently 3%.
It is possible to make a claim to reduce your payments on account. However, if they are reduced too much then late payment interest will be applied to the underpayment.
So, this summer make sure the only thing getting burnt are the sausages on the BBQ!