If you have completed a self-assessment tax return for 2020/2021 or 2021/2022 you may be due to make a payment on account by 31st July 2022. Not everyone is expected to make July payments on account, if you are unsure the following information may help you to ascertain whether this applies to you.
Why do payments on account need to be made?
You will be expected to make payments on account of your self-assessment tax liability if your tax bill and Class 4 National Insurance liability for the previous year was at least £1,000 unless 80% of it is collected at source, for example, under PAYE. Consequently, you would need to make payments on account for 2021/22 if you owed at least £1,000 for 2020/21.
What date are payments on account due?
You should have already made the first payment on account for 2021/22 which was due on 31 January 2022. The second payment on account is due by 31 July 2022. You should have received a letter from HMRC, telling you what you need to pay and how to pay it. Interest is charged on payments made late. Alternatively this information will be on your tax return cover letter that your accountants supplied with your most recent tax return.
How are payments on account calculated?
Each payment on account is 50% of your 2020/21 tax and Class 4 National Insurance liability. If you pay Class 2 National Insurance contributions, you do not need to take them into account when calculating your payments on account.
How does early filing of your 2021/22 tax return affect your payment on account?
If you have already filed your 2021/22 self-assessment tax return, you will know your ACTUAL tax and Class 4 National Insurance liability for 2021/22 – these figures supersede the 2020/21 predicted payment on account figures.
If your ACTUAL 2021/22 liability is lower than calculated in your 2020/21 tax return, you can reduce your payments on account to match the ACTUAL liability and pay the balance owing for 2021/22 by 31 July 2022 (i.e. the total due for the 2021/22 tax year minus the first payment on account). If applicable you can reduce your payments on account either through your online self-assessment account or by post.
If your ACTUAL 2021/22 liability is higher than calculated for 2020/21, you can simply pay the second payment on account based on your 2020/21 liability by 31 July 2022. Any remaining balance must be paid by midnight on 31 January 2023.
Struggling to pay?
If you will struggle to pay your second payment on account, you may be able to set up a ‘Time to Pay’ plan online if you have filed your latest return, owe less than £30,000, are within 60 days of the payment deadline and will be able to clear the debt in 12 months or less. This will allow you to pay what you owe in manageable instalments.
Here to Help
If you need further clarification on the points above, or would like to discuss your individual circumstances, contact Angela by email: Angela@pricedavis.co.uk or phone: 01452 812 491.