Self-Assessment – do you have to make a payment on account before 31 July?

In case you were not aware, 31 July 2022 is the deadline for the second payment of account for tax for the year ending 2021/2022. The first payment’s deadline was earlier this year, on 31 January. Once you submit your tax return in January and HMRC know how much tax is actually due you might then need to make a balancing payment before 31 January 2023.

Who does it affect?

Anyone with untaxed income, generally Sole Traders / Self-Employed, and incurs on the National Insurance Tax, class 2 and 4. But there is an exemption for individuals where:

• The amount payable at the end of the previous tax year was less than £1,000, or
• More than 80% of the tax liability for the previous tax year was collected at source (ie employees)
• Excludes capital gains – these are transactional

Common questions about the second payment:

• In 2020 I deferred my second payment on account – can I do the same this year? No, you can’t. That was a concession from the HMRC due to the pandemic for that payment only.
• How are they calculated? Each payment on account is 50% of the previous year’s income tax and Class 4 National Insurance Contributions liability less the tax collected at source.
• Will Making Tax Digital (MTD) ITSA mean the end of payments on account? Unfortunately, no. Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is expected to remain in place for the foreseeable future.
• My payment on account is too high – if you know your profits for 2021/2022 are lower than anticipated it may be possible to change your payments on account. If the payments on account have already been made, HMRC should issue a repayment for the difference – your accountant can help you with this.

It’s worth making sure that you speak to your accountant to help you with working out what payments you need to make to HMRC and when – its not something you want to get wrong.