If you’ve started off in business there are a few things you’ve got to be aware of when it comes to your accounts. The first is what’s referred to as ‘payments on account’. Essentially these are advance payments towards your self-assessment on your taxes. They occur twice a year and the first deadline by midnight 31st January and by midnight 31st July. The first payment will be towards settling any outstanding amount on your tax bill from the previous year and the July payment will be towards the other half of the funds owed. This is based upon HMRC expecting you to make a similar amount in earnings than you did to the previous year.
The reason you have to make these payments on account is essential so you don’t get trapped in a cycle of tax whereby you have to make payments the same year as your earnings. Otherwise, you would always be behind when it came to your tax bill unless you worked double the amount you usually would’ve in order to settle your bill. You MUST be making these payments on accounts if your tax in total comes to more than £1000. The only exception to this is if 80% of that tax was taken through PAYE or Pay As You Earn.
So if you’ve only just realised about these payments now, and you’ve now realised that you’ve missed the deadline to make this payment, what’s the penalty? Well, you’ll have to pay a fee of £100 unfortunately if you have filed a late return. And then another £100 after 3, 6 or 12 months. If you let it go on over a year you could potentially see yourself and your business owing over £1,600.
So it’s essential that you file your tax return, even if you can’t pay the outstanding amount owed it means that you’re not going to incur further fees. The next step is to get in touch with HMRC in order to explain to them your situation. You can also apply to reduce the payments on your account by going into your online HMRC account and clicking ‘reduce payments on account’. Alternatively, you can send an SA303 form to your local tax office. If you’re unsure of just how much you have to pay it’s well worth contacting HMRC so that you can plan well in ahead and set aside the funds to fulfil your tax return.
It’s also important to note that these payments on account only apply to you if you’re a sole trader and thus self-employed. If you’re employed, even by your own limited company, you don’t have to make these payments on account as you’re going to be on a PAYE or Pas As You Earn scheme whereby over 80% of your tax is going to be through such scheme so you won’t have to file these tax returns.
If you want to know more about payments on your accounts and other aspects of your business accounts you need to be aware of, get in touch with our team here at D&K accounting.