If you are self employed individual you might be required to make your second tax payment on account by July 31st. Ideally this isn’t news to you!
Paying on account is essentially a method of settling your tax bill ahead of time. Your first installment for the 23/24 tax year was due on January 31st 2023, along with any balance owed from the previous tax year.
If you’re not sure if you owe HMRC a second payment on account for the 22/23 tax year you can check in your online tax account.
Missing the self assessment second payment on account deadline can lead to HMRC penalties on overdue income tax owed.
How is the second payment on account calculated?
A second payment on account is based on your prior tax bill and typically divided equally between the two installments. This means you pay half in January and the other half in July.
The calculation assumes that your income for the current tax year will be similar or higher than the previous year.
If your earnings increase and your tax bill rises you clear the outstanding balance on January 31st.
Self assessment penalties for overdue payments on account
If you’re second payment on account has not been made more than 30 days past its due date you will be charged an initial penalty worth 5% of the income tax unpaid at that date.
A variety of factors can lead to well intentioned taxpayers missing the second payment deadline.
HMRC giving a 30 day buffer period ensures that these taxpayers are not penalised for late payment.
Adjustment of second payment on account
It might seem a bit unjust to pay a tax bill on money you haven’t yet earned and the unpredictable nature of self employment can cause annual incomes to vary significantly.
If you anticipate earning less than the previous tax year you can adjust your payment on account with the HMRC.
You’ll have to justify your reason for reducing your payments and establish a new amount you plan to pay.
This option is particularly beneficial for those whose self employed income (for whatever reason) is not matching the previous tax years.
It may be beneficial to resist the urge to lower your payments if your business has a steady or growing taxable profit.
