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Explaining HMRC Payments on Account

As a self-employed person you generally pay less tax than if you were employed, as well as a lower rate of national insurance on your earnings – to cover the risks you take, and the absence of benefits such as paid holiday that employees would receive.

An employee would have to pay their tax monthly, whereas you need to pay the tax several months after the tax year-end as a self-employed person.

Excluding payments on account: with the tax due for the year ended 5th April 2013 not being due until 31st January 2014 you have those months equivalent to an interest free loan from HMRC – an employee would have already paid all their tax by 5th April 2013.

To counter this, HMRC ask for payments on account.

Where it might seem unfair is when the next year’s tax payment falls due on 31st January 2014 – although by then you will have had another 9 months without paying any tax (which is why the payments on account arise.)

HMRC collects the 2013/14 tax in two instalments, so you pay 50% on 31st January 2014, when you will have had 9 months earnings tax-free and 50% on 31st July 2014 – over 3 months after the money has been earned.

The system for the self-employed is much better than that for employees, although at first glance it appears not to be.

Payments on account are estimated and can be reduced – but only when the profit is expected to reduce.

If you were to increase your business costs by additional expenses then if the net profit is reduced the payments on account could be as well.

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Accountant in Surrey

Are you looking for a personal tax specialist?

I built up my tax experience in industry and practice over 17 years before founding my own practice in 2006.

Based in Cobham, Surrey I can also help clients throughout the UK.

  

My goal is to make personal tax and accounts for the self-employed as easy as possible for clients

 

Award-winning Accountant

Small Business Saturday is the UK's most successful small business campaign. Only one hundred of the UK’s top small businesses are selected each year for the SBS100. They act as trail-blazers in the official count-down towards the annual event.

I was one of the alumni from the 2014 Small Business Saturday 100, resulting in two visits to Downing Street.

In the Surrey Digital Awards from 2015 - 2018, I was also the winner of several top awards.

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