Around this time of year we are asked lots of tax payment on account questions, it’s what you might expect, we are after all accountants and tax advisers. One of the questions we are asked regularly is “Can I reduce my July payment on account?”
With this in mind, we asked a member of our tax team, Tetyana, to tell us a little about payments on account and whether individuals due to make July payments on account could look to reduce their liabilities. We posed various questions to Tetyana, these are her answers,
What is a payment on account and can I reduce my July payment on account?
When it comes to tax payments on account these are advance payments towards your tax bill (including Class 4 National Insurance if you are self-employed). This payment is made to HMRC.
A taxpayer makes 2 payments on account every year unless they fall into the the criteria below:
• Their last self-assessment tax bill was less than £1,000.
• They paid more than 80% of the previous year’s tax due at source, for example through your employment/via PAYE.
The payments that need to be made on account for 2023/24 are based on your income tax liability for the year to 5 April 2023. Each payment is half of your previous year’s tax bill. Payments are due on 31 January and 31 July.
What if I still have tax due after my balancing payment?
If you still have tax to pay after you have made your payments on account, you must make a “balancing payment” and this is due by 31 January next year (i.e. by 31 January 2025 for the 2023/24 tax year).
So, for each tax year you may have up to three tax payments to make to HMRC.
What date are the tax payments due to HMRC for 2023/2024?
For 2023/24 the payment schedule would look like this:
- First payment on account due 31 January 2024
- Second payment on account due 31 July 2024
- Balancing payment due 31 January 2025.
Can I reduce my HMRC July payment on account?
If your income such as your self-employment, rental, dividends and savings income has gone down or ceased in 2023/24 tax year it is possible to reduce your payments on account due to HMRC.
This is where it will benefit you to prepare and submit your 2023/2024 ahead of the 31st July deadline. Submitting your tax return early will enable you to determine if there is scope to reduce your July payment on account.
You may also receive a refund of the payment made in January 2024 (there is no need to wait until January 2025).
If your tax liability for 20023/2024 is higher than the January payment already made but lower than last year you can then just pay the balance on or before 31 July 2024. In this scenario, you must file your 2023/2024 tax return before 31 July 2024 in order to calculate the new “balancing payment” due to HMRC.
No balancing payment will be due in January 2025, but the first payment on account for 2024/2025 will still will be due in January 2025.
If you have seen a drop in your self-employed income, rental income, dividends or savings income (especially as a result of decreasing interest rates), this could apply to you. If so, we strongly recommend that you touch with us and speak to a member of our private client team and seriously consider filing your 2023/24 tax return before 31 July 2024. You could reduce your July payment on account!
Contact us or call us on 020 7870 9050 where a member of our team is waiting to help.
