Personal Tax Payments on Account
In the UK, self assessment is a system that taxpayers use to calculate and pay their own tax liabilities. Under this system, taxpayers are required to make personal tax payments on account, which are advance payments towards their future tax liability. These payments are made twice a year, and are based on the taxpayer's previous year's tax liability. The Personal Tax payments on account (sometimes referred to as POA) are due on the 31st of January and the 31st of July, and are typically equal to half of the previous year's tax liability. These payments are intended to help taxpayers spread out their tax payments and avoid having to pay a large tax bill all at once. They also are positive for the Treasury who essentially get paid the tax. in advance.
Knowing how much to pay and when can be confusing so let's look at an example of personal tax payments on account.
Personal Tax Payments on Account Example
Let's say that John is a self-employed taxpayer in the UK, and in the previous tax year he had a tax liability of £10,000. This means that he will be required to make payments on account of £5,000 twice a year, on the 31st of January and the 31st of July. These payments will go towards his future tax liability for the current tax year.
The next tax year John has a tax liability of £15,000.
John has already made his 2 payments on account towards this tax liability - so he's paid £10,000. That means on 31st January he will have a balancing payment to make of £5,000.
But in addition to that balancing payment, John will also have to make a payment on account towards the next tax years liability.
That new payment on account is calculated at 50% of the current liability, the £15,000. Which equals £7,500. This will also be payable on or before 31st January.
That means in this year John will need to pay £5,000 (balancing payment) + £7,500 (payment on account) = £12,500
He will also have the 31st July payment on account of £7,500 to make.
If however, John's tax liability for the 2nd year was £8,000 (and not £15,000) then John would be due a tax refund. This is because John has made his 2 payments on account, totalling £10,000. Which means he has overpaid tax by £2,000. He will receive that as his refund.
By understanding how Personal Tax Payments on Account work, you can avoid overpaying or underpaying your taxes. This will help you stay on the good side of HMRC and keep more of your hard-earned money in your pocket.
Subscribe to the Friday Financial Freedom Finder Newsletter
Subscribe to our weekly newsletter that delivers the most actionable, tactical, and timely business and financial tips you actually need in 9 minutes or less. Get an edge over the competition and get control of your business finances, for free.
How to Budget for a Small Business in the UK (A Simple Framework That Actually Works)
Let’s be honest. The word “budget” probably doesn’t fill you with joy.
My Small Business Isn’t Making Enough Profit: 7 Reasons Why (And What to Do)
Revenue is vanity, profit is sanity. It’s a well-known saying in the
How to Pay Yourself as a Business Owner in the UK: The Complete Guide
For many UK business owners, the question of how to pay yourself
