Self assessment payments on account

I am a self employed physiotherapist and I have received a letter from HMRC saying that I need to make a payment by 31 July 2016 as a payment on account for my tax. Can you explain what this is?


payments on account

Answer, July 2016

Your payments on account are an advance payment for your self assessment tax bill based on your previous years filed tax return.

There are two payments on account dates:

  • 31 July
  • 31 January

Each payment on account is calculated as being 50% of your previous years self assessment bill – which will include tax and, in the case of the self employed, class 4 national insurance.

There are some instances where you do not have to make payments on account:

  • If the tax owed on your tax return was less than £1,000
  • If you’ve paid more than 80% of the tax you owe – for example if you are employed, your tax is deducted at source through your tax code.

You can also apply to reduce your payments on account if you expect your tax bill to be lower – you can elect to do this through your tax return or through your HMRC online account.

The 31 July 2016 payment on account is the second payment on account for the 15/16 tax year – we’ll work through an example below:

Let’s say that when you filed your 14/15 tax return (which had to be filed online by 31 January 2016), your only source of income was self employment, and your tax and class 4 national insurance for 14/15 totaled £8,000.

You would have had to make a payment to HMRC by 31 January 2016, which would have covered:

  • The balance of tax and national insurance owed of the £8,000 (less any payments on account already made against this); and
  • 50% of the £8,000, as a payment on account for the 15/16 tax year.

You would also have a payment due to HMRC by 31 July 2016 of another £4,000, being the second payment on account for the 15/16 tax year.

When you file your 15/16 tax return, the payments on account already made will be factored in, but you will also have payments on account to make for the 16/17 tax year.

Our table below explains the self assessment tax payment dates:

payments on account