As the upcoming self-assessment tax return is looming, take note that all self-employed professionals will be required to submit their self-assessment tax return, payments on account and balancing payment by Midnight 31 January 2020.
If you’re new to self-employed working, it may be tricky to get your head around the way you are taxed as your tax bill is paid in advance for the upcoming tax year through ‘payments on account’. This is paid in two instalments which are typically split 50/50 and based on your tax bill from the previous year. If your tax bill is higher than anticipated than the previous tax year or you have any outstanding tax due, you will need to make a balancing payment to cover the increase in January, next year.
What payment should I make in January 2020?
The following payments are due on January 2020 if you are self-employed and have a self-assessment tax bill over £1,000:
31st January 2020 – Payment for 2019/2020 tax year. This will be based on your tax liability from the previous tax year.
31st January 2020 – Balancing payment for 2018/2019 tax year. This will be payable if you owe any outstanding debt.
Your second payment on account instalment for the 2019/2020 tax year will be due on 31st July 2020.
Can I opt-out of making payments on account?
If you are self-employed, you are required to make payments on account which ease the financial pressure, rather than making your tax payment in one monstrous payment. You will not make payments on account if:
- your last Self-Assessment tax bill was lower than £1,000
- you’ve already paid more than 80% of tax owed as it was deducted at source
If you fail to meet this deadline, you face the risk of a late payment penalty, unless you have a reasonable excuse.
How to make payments on account
Whilst submitting your self-assessment online, you can make payments on account at the same time as making your balancing payment for the previous tax year. If you submit your self-assessment through a paper tax return, you will receive a paper form from which you can make payment.
Overpaying or underpaying your tax bill
If you are worried that you have overpaid on your tax, HMRC will issue you with a refund. If you have underpaid, you will be charged interest. If you are aware in advance that your tax bill will be lower than the previous year, contact HMRC to reduce your payments on account online or through a SA303 paper form.
If your payments on account or balancing payment is late by over 30 days, there will be a late penalty equivalent to five per cent of tax due. If you are unable to make payment as a result of a reasonable excuse, you have 30 days to make alternative payment arrangements with HMRC.
As a self-employed professional, you may be taking the DIY approach to minimise your overheads, however enlisting an accountant can save you the hassle of juggling multiple deadlines, cautiously ring-fencing funds to meet HMRC liabilities and pinning dates to your calendar to ensure that you comply with HMRC deadlines.
Handpicked Accountants can connect you with qualified accountants in your local area, who can advise you on payments on accounts. Each accountant has been thoroughly vetted to ensure that they embody the high standards required to become a Handpicked Accountants. Please contact a member of the Handpicked Accountants team to find out who your local Handpicked Accountants are.