Self-assessment - do I need to make a second payment on account?

By: Mike Parkes

Date: 18 June 2019

An entrepreneur does her monthly accounts and calculates her tax liabilities and payments to HMRC.

For the uninitiated, you may be wondering what a ‘second payment on account’ is. If you’re a freelancer or have any earnings outside PAYE, you may need to make two advance payments on account towards your current year’s tax bill.

As most of you will be aware, the date of the first payment on account is January 31 - which is also the deadline for your self-assessment. However, without the buzz of tax conversation, the second, summer deadline is considerably less well-known, and can catch out even the most diligent of taxpayers.

Not everyone will need to make payments on account, but with the July 31 deadline fast approaching, it’s best to be certain well before the due date. Mike Parkes from GoSimpleTax provides clarification.

Simple TaxNeed help with your self assessment tax return?

GoSimpleTax makes your self assessment tax return quick and easy, helping you figure out which expenses and allowances you can claim.

Get SimpleTax Gold for £30.60 with our 15% Donut discount.

Register here for your 15% discount

What is a second payment on account?

For those who are required to make payments on account, your estimated tax liability for the year ahead is split into two in order to make the payment easier to manage.

For example, if your tax bill for 2017/18 was £5,000, then HMRC will require two payments on account of £2,500 each to go towards your 2018/19 tax bill. The first will be due on January 31 2019, and the second on July 31 2019.

You will only be required to make payments on account if your self-assessment bill was for more than £1,000. Also, if over 80% of your annual tax bill is deducted at source (from employment, for example), you are exempt from making payments on account.

For instance, you may have a total tax bill of £10,000 for 2017/18, £8,200 of which is paid via your salary - so you just need to make one payment of £1,800 in January, and no payments on account (as 82% of your tax is paid at source, through your salary).

How are payments on account calculated?

It’s important to remember that payments on account are based on your earnings from the previous year. Should your income dramatically fall, your payments on account can be reduced to reflect a lower income. You can therefore make a claim to reduce your payments on account.

Be careful though: reduce them too much and you can incur an interest charge on any tax shortfall. The opposite applies if your income increases (as this will result in a ‘balancing payment’ on January 31 of any shortfall from your two payments on account).

It’s important to be aware of these hidden costs and be alert to the consequences of any significant changes to your earnings.

If you’re struggling to find the relevant information to make your second payment on account, check any HMRC correspondence you’ve received. They should have written to you following your January payment, including further details of how to pay in the summer.

What if I can’t afford it?

Contact HMRC well before July 31 if you’re concerned you can’t make payment. They may be able to arrange a payment plan. Should you miss the deadline without informing them, you’ll start to accrue interest and penalties.

HMRC are particularly stern with on account payments. If you haven’t paid off the tax by the following January, you can be expected to pay 5% of the total charge along with the accrued interest.

Ultimately, be sure to stay aware of your responsibilities throughout the year to avoid any hidden costs and charges.

Copyright © 2019 GoSimpleTax offers tax return software that can help you manage your self assessment.

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.