This is a quick update about the ‘HMRC Payment on Account’ on your Self-Assessment return.
You do NOT have to pay Payment on Account if you meet
- if you started your company on or after 6th April 2020; or
- if your Personal Self-Assessment tax bill for Financial Year 2019/20 is less than £1000
If you paid a tax bill of above £1000 in January 2021 – please read on.
You might have already received a payment reminder from HMRC regarding the same matter.
What is Payment on Account?
‘Payments on account’ are payments made towards your following year’s income tax. In other words “Advance Payments” towards following years’ Income Tax. There are two payment dates – 31 January and 31 July. Each payment is half of the amount due for the previous year.
How is it calculated?
Easy to explain through an example.
Assume your personal tax bill (mainly due to Dividend Tax) for 2019/20 is £2,000. Payment due date for this is 31st January 2021.
You would have made a below payment using your personal bank account on or before 31st January 2021.
Personal Tax bill for 2019/20= £2,000
50% Payment on Account for 2020/21 = £1,000
Total Payment = £3,000
Rest of the 50% (i.e £1,000) will need to be paid to HMRC by 31st July 2021
What will happen to such advance payments?
These two payments will offset your Tax liability for 2020/21.
Where do you make this payment to?
You need to make these payments to HMRC Bank Account no
Sort code: 08 32 10
Account number: 12001039
Account name: HMRC Cumbernauld
or you can pay online via HMRC
What reference number should you be using for this payment?
You should use your Personal UTR number.
Which Bank account should you use for the payment?
This is a personal tax so need to be paid from your personal Bank Account and NOT from the Business Bank Account.
Please note personal Financial Year 2019/20 – starts on April 6th 2019 and ends on April 5th 2020.
What should you do if your circumstances have changed?
If you have taken up full employment and if your taxes are deducted at source via PAYE, you may need not to pay this. If you do pay it – HMRC will refund it after your 2020/21 tax returns are submitted.