Tuesday 5th December 2017

Personal Tax: Making Payments on Account

If your self assessment tax bill is over £1,000 you will need to make advance payments towards the following tax year.  There will be two payments to make by the 31 January and 31 July, each will be credited towards your coming tax bill.  Note: if 80% or more of your tax is collected at source e.g. by an employer you do not need to make payments on account.

Example - Payments on Accounts for the tax year ending 5th April 2017

Darren the associate dentist started trading as a limited company.  His accountant advises him to take income from his company as a salary of £11,000 and a dividend of £32,000 for the tax year 2016/2017.  This avoids Darren having to pay higher rates of tax.

Darren has a tax liability for 2016/2017 of £2,025 to pay to HMRC by 31 January 2018.  Because his tax liability is over £1,000 he has to make payments on account for the following tax year ending 5th April 2018 of £1,012.50 (50% of £2,025).  The payments on account are due in two instalments of £1,012.50 by 31 January 2018 and 31 July 2018.  

Therefore, Darren has a tax payment to make on the 31 January 2018 of £3,037.50.  This is made up of the £2,025 balance of tax due for 5th April 2017 and the 1st payment on account due for 2017/2018 of £1,012.50.  This is effectively a payment of 18 months of tax liabilities.  Darren's next tax payment is the 2nd payment on account for 2017/2018 of £1,012.50 and is due with HMRC by 31 July 2018.  This payment is effectively 6 months of tax.

Darren's accountant advices him to budget for £1,000 of personal tax payments every 6 months going forward.  This is in addition to his Company's Tax payments.

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