Second Payment on Account due on 31 July – but do you need to pay it?
If you are already in the self-assessment tax system (i.e. 2017/18 was not your first self-assessment tax year) then you may be due to pay your second payment on account for the 2017/18 tax year by 31 July 2018. However you may not need to pay it all, or indeed any of it, if your tax liability for 2017/18 is less than it was in 2016/17. Here we explain further.
‘Payments on account’ (POAs) are payments made towards your following year’s income tax and class 4 National Insurance contributions (NIC).
When calculating POAs due for 2017/18, you take your tax bill for 2016/17 (not including Class 2 NIC, capital gains tax liabilities or student loan repayments) and divide this figure by two. The resulting number is each POA for 2017/18 – one was due on 31 January 2018 and the other will be due on 31 July 2018. You can find more information on payments on account on our website.
Be aware that if the 2017/18 tax year is your first year in the self-assessment tax system then you will not have to pay the tax you owe until the 31 January 2019 deadline. The first payment on account, if applicable, for 2018/19 will be due then. (If your self-employment started in 2017/18 and you have not yet registered with HMRC to come into self-assessment, you should do so by 5 October, otherwise you risk being charged late registration penalties – see our website for more information.)
How can I reduce my payments on account?
- You think your tax bill is less for 2017/18 than 2016/17 because you had less self-employed income, for example; or
- You know you owe less for 2017/18 than for 2016/17 having already prepared the figures for your tax return for 2017/18
then it is possible to ask HMRC to reduce your payments on account.
You need a reasonable estimate of the amount you owe in order to reduce your POAs. If it turns out that you have reduced them too much, you could face interest charges and even a penalty if the claim was fraudulent or negligent. The best way to make sure that this does not happen is to be certain of your figures. You can find more information to help you do this on our website.
Any reduction made now will be applied to both payments. Once this is done, this could mean that you paid too much in January – that extra amount can help to cover the reduced July payment, or mean you have nothing to pay. The best way of explaining this is by looking at some examples:
Example – Cath
Cath, who is a self-employed bookkeeper, had a tax and class 4 NIC liability of £1,400 for 2016/17. Based on her 2016/17 liability her 2017/18 payments on account are £700 each – one due on 31 January 2018 and one due on 31 July 2018.
During the last few months of 2017/18, Cath’s workload reduced. Although she has not done her tax return yet, she has looked carefully at her income and expenses and estimates that her tax and Class 4 NIC liability for 2017/18 is £1,200. She makes a claim to reduce her payments on account to £600 each. As she paid the full £700 in January, she only needs to pay £500 by 31 July 2018.
Example – Manjit
Manjit is a self-employed web designer. She has a tax and class 4 NIC liability of £3,000 for 2016/17. Based on her 2016/17 liability, her 2017/18 payments on account are £1,500 each – one due on 31 January 2018 and the other due on 31 July 2018.
Manjit paid her first payment on account as normal, but due to an accident shortly after, stopped working. By preparing the figures for her 2017/18 tax return early, she knows her tax and class 4 NIC liability for 2017/18 is £1,000. She therefore makes an application to reduce her payments on account to £500 each. As she has already paid £1,500 in January, she does not need to pay anything in July 2018. In fact, she has still paid £1,000 too much which will now be refunded. If HMRC do not do this automatically, then Manjit can claim this herself as described on GOV.UK.
Manjit could also complete the tax return form and submit it to HMRC – they should automatically revise the payments on account to the correct lower amounts when they process the return. Even though the deadline is not until 31 January 2019, she does not have to wait until then to submit it.
How do I reduce my payments on account?
You can reduce your payments on account by filling in a SA303 form or, if you file your tax return online, by logging into your HMRC online services account and clicking ‘Reduce my payments on account’. You can find the form, and link to online services via GOV.UK.
You must tell HMRC if you want to reduce your payments on account. If you simply pay a lower amount to HMRC, their systems will show that there is still an amount outstanding and it is likely that they will contact you for payment.
If you cannot afford to pay the 31 July 2018 instalment in full by the due date, then you should contact HMRC as they may be able to give you more time to pay. You can find out more on our website.