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Wednesday 20th November 2019

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 2018

Darren the associate dentist started trading as a limited company.  His accountant advises him to take income from his company as a salary of £11,500 and a dividend of £33,500 for the tax year 5th Apirl 2018.  This avoids Darren having to pay higher rates of tax.

Darren has a tax liability for 2017/2018 of £2,363 to pay to HMRC by 31 January 2019.  Because his tax liability is over £1,000 he has to make payments on account for the following tax year ending 5th April 2019 of £1,181 (50% of £2,363).  The payments on account are due in two instalments of £1,181 by 31 January 2019 and 31 July 2019.  

Therefore, Darren has a tax payment to make on the 31 January 2019 of £3,544.  This is made up of the £2,363 balance of tax due for 5th April 2018 and the 1st payment on account due for 5th April 2019 of £1,182.  This is effectively a payment of 18 months of tax liabilities.  Darren's next tax payment is the 2nd payment on account for 2018/2019 of £1,182 and is due with HMRC by 31 July 2019.  This payment is effectively 6 months of tax.

Darren's accountant advices him to budget for £1,182 of personal tax payments every 6 months going forward.  This is in addition to his Company's Tax payments.

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