If you’re self-employed and pay tax through Self Assessment, 31 July may be an important date in your calendar.
For many people, it’s the deadline for making their second ‘payment on account’ towards their next tax bill.
But what happens if 31 July has been and gone and you haven’t paid?
First of all, don’t ignore it. Missing the deadline doesn’t mean you need to panic, but it is important to deal with the outstanding payment as soon as possible.
Here’s what you need to know and the steps you can take.
What is a payment on account?
Payments on account are advance payments towards your next Self Assessment tax bill.
Rather than paying your entire tax bill in one go, HMRC usually asks eligible taxpayers to make two payments during the year:
- the first by 31 January
- the second by 31 July
Each payment is normally half of the previous year’s tax bill.
You usually need to make payments on account unless your previous Self Assessment tax bill was less than £1,000, or you had already paid more than 80% of the tax you owed outside Self Assessment – for example, through PAYE.
Step 1: Check whether you actually owed a payment
If you’re unsure whether you were required to make a Self Assessment payment by 31 July, start by checking your HMRC online account.
Your Self Assessment statement will show your payments on account, including what you have already paid and what is still outstanding.
It’s worth checking rather than assuming you have missed a payment, particularly if your circumstances have changed or you have already made payments during the year.
Your accountant can also confirm what was due and whether the amount showing is correct.
Step 2: Pay what you owe as soon as possible
If you did miss the 31 July deadline and you can afford to make the payment, the simplest course of action is to pay it as soon as you can.
HMRC charges interest on late payments, and this starts from the date the payment was due and continues until it is paid.
That means there is little benefit in waiting until your next Self Assessment deadline to deal with it.
There are several ways to pay, including through your online bank account, bank transfer, Direct Debit and debit card. Some payment methods take longer to reach HMRC than others, so check the processing time when making your payment.
Step 3: Don’t ignore it if you can’t afford to pay
Sometimes the problem isn’t forgetting the deadline – it’s simply not having enough money available to pay the bill.
If that applies to you, ignoring the outstanding amount is unlikely to make things easier.
HMRC may be able to agree a payment plan, often referred to as a Time to Pay arrangement. This allows eligible taxpayers to spread what they owe over an agreed period rather than paying the entire amount immediately.
What is available will depend on your individual circumstances and the amount you owe.
If cash flow is tight, speak to HMRC or your accountant as soon as possible so you understand your options.
Step 4: Check whether your payments should be lower
Payments on account are generally calculated using your previous year’s tax bill.
But businesses and incomes change.
Perhaps your profits have fallen, you’ve reduced your working hours or you know that your tax bill for the current year is going to be considerably lower.
In this situation, it may be possible to ask HMRC to reduce your payments on account.
This can be done through your online HMRC account or by submitting the relevant form.
However, it is important to be realistic. If you reduce your payments too far and your eventual tax bill is higher than expected, HMRC can charge interest on the difference.
This is an area where getting advice before making a reduction can be particularly useful.
Step 5: Look ahead to your next Self Assessment deadline
Once you have dealt with the missed July payment, it’s worth looking at what comes next.
The next major Self Assessment payment date is 31 January.
Depending on your circumstances, you may need to pay any outstanding balance for the previous tax year as well as your first payment on account towards the following year.
Knowing approximately what will be due well in advance can make budgeting much easier.
If possible, consider putting money aside regularly for tax rather than waiting until January or July to find the full amount.
What if you only missed the deadline by a few days?
The best thing to do is still to pay as soon as possible.
Interest is charged on late payments from the date the tax was due, so even if you are only a few days late, dealing with it now will prevent further interest building up.
If you have made the payment but it is not yet showing in your HMRC account, remember that some payment methods can take several working days to process.
Keep confirmation of your payment and check your account again once the relevant processing period has passed.
Don’t leave a missed tax payment hanging over you
Tax deadlines are easily missed, particularly when you’re busy running a business.
The important thing is what you do next.
Check what you owe, make the payment if you can and, if you can’t, seek advice rather than allowing the problem to build.
It’s also a good opportunity to review your expected tax bill for the year ahead. A little planning now can make the next payment deadline considerably easier to manage.
Need help understanding your payments on account?
If you’re unsure what you owe, think your payments on account may be too high or are concerned about an outstanding Self Assessment payment, speak to our team. We can help you understand your position and the next steps available to you.
