Freelancers' Questions: When do I need to make a payment on account?

Freelancer’s Question: I overheard a freelance colleague saying that she needs to make a Payment On Account this month. But I made mine in January, so does the July payment not apply to me? I’ve been out of the country so will check my correspondence from HMRC.

Expert’s Answer: As you seem to remember, the first payment on account towards your 2017/18 tax bill was due by January 31st. And all second payments on account are indeed due by July 31st.

It might seem unfair that you have to pay the taxman again when you’re trying to sort your summer holidays, but there’s a logic behind it!

Payments on account are essentially advance payments towards your next personal tax bill (2017/18 tax year at the moment) -- and these are calculated based on how much you paid the previous year (2016/17). HMRC splits this debt into two, equal, instalments six months apart from one another (January and July) -- creating a pair of lower bills rather than one big one.

For example, if during the 2016/17 tax year you were paid a £11,000 salary and £30,000 in dividends, the total tax due is £1,875 to be paid in full on January 31st 2018. In addition to this, you would be required to pay two payments on account of £937.50 – one being on January 31st 2018 and the second on July 31st 2018.

The only instance where you will not need to make any payments on account are if your last Self-Assessment bill was below £1,000 or if over 80% of your annual tax bill is deducted at source, such as from employment.

The expert was Amanda Swales, a director of accounting software platform GoSimpleTax.

 

23rd July 2018

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