Payments on Account & HMRC Demands

The time to make your second 2018/19 payment on account for Self Assessment is becoming due on 31 July 2019, but what exactly is a payment on account (POA)? In most cases, a POA arises when an individual’s tax liability is more than £1,000 in a tax year and are due in equal instalments on 31st January and 31st July following the end of the previous tax year. Such instalments aren’t required where more than 80% of the tax due has been collected at source. In respect of these instalments, they both represent half of the total tax due for the respective year.

In the first year of Self Assessment a taxpayer is often required to pay tax on the following 31st January for year 1 and a 50% POA for year 2, with a second POA for year 2 on 31 July. This can affect cashflow and the tax for year 2 may well be higher or lower than year 1.

It is possible to apply to reduce the POA if a taxpayer reasonably believes the overall tax will be lower. This is acceptable to HMRC, but they will charge interest at 3.25% on any eventual shortfall if it arises.

HMRC generally issue statements to taxpayers prior to the payment deadline and so taxpayers should now start to receive relevant demands for their 31 July POA. However, technical issues have known to arise regarding taxpayers not receiving their demands. This can cause numerous problems for taxpayers, one being that they could possibly be liable to a large tax bill for the following January coupled with interest charges. To help mitigate this, taxpayers who aren’t sure whether they are due a tax liability, should contact their respective tax adviser. If individuals prepare their own tax returns, they should call HMRC on 0300 200 3310 or check their online tax account.