Many workers and business owners face a looming deadline from His Majesty’s Revenue and Customs (HMRC). The July 31 cut-off affects anyone obligated to make ‘payments on account’ through Self-Assessment tax returns.
Whilst most employees have tax automatically deducted from salaries and pensions via the PAYE system, those earning from additional sources must file annual tax returns with HMRC. ‘Payments on account’ represent instalments towards your upcoming tax bill, including Class 4 National Insurance contributions for the self-employed.
This arrangement helps workers manage tax costs by splitting payments in two, with each instalment typically representing half of the previous year’s tax liability. The initial payment was required by January 31, 2025, whilst the second must be settled before midnight on July 31.
Taxpayers who miss this crucial deadline face penalties, with HMRC reportedly imposing 8.25% interest on overdue tax payments. Seb Maley, CEO and tax insurance specialist at Qdos, explained: “Missing the Payment on Account deadline can easily snowball into bigger problems. Firstly, HMRC will charge interest on outstanding tax payments which, at 8.25% can rack up quickly.
“You also run the risk of being investigated by HMRC – late payments are one of the many red flags that the tax office looks out for. Because of the low threshold at which a Payment on Account is due, it impacts millions of taxpayers.
“From full-time freelancers and small business owners to the growing number of people with side hustles – many of whom might be new to this way of working. It goes without saying that compliance is paramount.
“You can’t afford to ignore this deadline. HMRC has more data, information and tools at its disposal than ever before. Staying on top of your tax obligations and making your Payment on Account on time is important, not just for peace of mind, but to minimise the risk of being investigated by HMRC.”
Nevertheless, the Government clarifies that people in the following two circumstances won’t need to make these payments:
- The amount of tax you owed last year was less than £1,000
- Last year, you paid more than 80% of the tax you owed outside of Self Assessment (for example, through your tax code or because your bank had already deducted interest on your savings)
If you’re uncertain about what you owe, examine your Self-Assessment statement or online account. You can access GOV.UK here.
How are payments on account worked out?
Payments on account are calculated based on your projected earnings, usually using the previous year’s income as a guide. Each instalment typically amounts to half of the tax you owed last year.
Nevertheless, the Government emphasises that if you earn more than projected, you may still owe additional tax beyond your ‘payments on account’. This is referred to as a ‘balancing payment’.
You could be entitled to a tax refund if your income is lower than anticipated.
