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Everything you need to know about payments on account with HMRC

Everything you need to know about payments on account with HMRC
Thursday, October 05, 2017

Everything you need to know about payments on account with HMRC


Did you know that you can make payments on account with HMRC? It’s something more and more people to spread their personal tax bill over the year.


Is it the right solution for your situation? Panthera looks into the scheme and how it works.


Not one payment, two payments


There are two payments - you pay half of your tax bill as one instalment and what remains is paid at a later date. It sounds straight forward enough but there are lots of little catches you have to watch out for if you’re on the scheme.


How it works – an example


Your first payment is due by midnight on the 31st January. Your second payment must be made by 31st July at midnight.


Let’s assume we’ve done your tax bill for 2015-2016 and we’ve told you that you owe HMRC £40,000, just like the last three or four years beforehand. Because your instalments are calculated using your previous year’s tax, £20,000 of that would be paid on 31st January with the balance being settled on the 31st July. That’s all fine because you’ve paid the same amount of tax for years.


The next year however, you’re doing a bit better and for 2016-2017, we work out your tax bill as £50,000.


So, the instalments that you pay will stay at £20,000 in January and £20,000 in July because that’s what you paid in 2016-2017. But you’re also due to pay £10,000 more because you’ve made more money in 2016-2017.


The additional amount is called the “balancing amount”. This balancing amount must be paid by 31st January 2018.


What does the payment schedule look like?


In 2015-2016, you built up £40,000 worth of taxes and the following year, that was £50,000.


In 2017, your first payment on 31st January 2017 would be £20,000 (50% of the tax from 2015-2016). Your second payment would be on the 31st July 2017 also for £20,000 (the remaining 50% of the tax from 2015-2016).


In 2018, your first payment would the £10,000 balancing payment (the difference between the amount paid in 2017 and the total tax due for 2016/2017) plus £25,000 (50% of the tax from 2016-2017), giving you a grand total of £35,000.


Your second payment would be £25,000, the remaining 50% of the tax from 2016-2017.


Panthera tip – if you’ve already paid 80% or more of the total tax you owe or your self-assessment bill came in at £1,000 or less, you don’t have to make two payments in the year.


You can adjust the levels of your payments, but should you?


Businesses have good years and they have bad years.


If this year has gone a lot worse than the previous year (and remember that payments are based upon the previous year’s tax bill), you can apply to HMRC to have your Payment on Account reduced.


This will buy you time to get the business back up to its former trading levels or, better still, even higher.


However, there is a danger in this. Business might not pick up as fast as you want and you could be left with unmanageable tax payments. If you make an underpayment, this will attract interest on the outstanding amount and this will really push up your financial obligations to HMRC.


Take advice – it’s why we’re here


If you want any help with self-assessment, paying taxes, or you want to find out more about Payment on Account, just give us a call on 01235 768 561 or email us at

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We found Panthera via our search for a Xero expert. We knew the software we wanted to use, and needed a forward-thinking accountancy partner who could get us up and running, and teach us the ropes moving forward. Tory and her team have always been on hand to answer our questions, and help us to grow as a business, particularly during periods of big change, such as becoming VAT registered. They are always on hand to alleviate any concerns and help to keep our records in order, which makes our year-end accounts an absolute breeze! Being based in Bristol, our relationship is entirely email based, alongside one consolidation meeting at year end - this keeps things simple, efficient and most importantly, hassle-free.

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The whole team at Panthera are great! Working with them has been a huge support to my growing business. They help me to understand the numbers I need to know. They give me technology solutions like Xero so that I can process things quickly and have access to my own figures. They are quick to reply, highly knowledgeable, nothing is too much trouble and as well as making sure that everything is compliant and on time, they are enthusiastic, professional and fun to work with.

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I had been with Mr Dunn for 20 years when upon his death Panthera took over the business. They now play a bigger part in the running of my business, they do all the stuff that has to be done but I don't like doing ie book keeping, VAT, wages, and returns. They are always there to answer queries and sort out issues and make sure all Tax deadlines are met. Their costs are fair, service is great and I have and would highly recommend them.

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