Martin Lewis talks self-employed pension options with expert
Make the most of your money by signing up to our newsletter for FREE now
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Self-employed workers are usually required to cover their tax costs through Self Assessments. Some of these tax bills can be covered in advance through “payments on account”.
Payments on account are required to be paid by anyone who pays the majority of their tax through Self Assessment, which typically affects people who receive the majority of their income through self-employment.
Generally, self-employed workers have to make two payments on account every year unless:
- Their last Self Assessment tax bill was less than £1,000
- They’ve already paid more than 80 percent of all the tax they owe, for example through their tax code or because their bank has already deducted interest on their savings
Payments on account are due this weekend (Image: GETTY)
Each of these payments is half of the payee’s previous year’s tax bill.
These payments are usually due by midnight on January 31 and July 31.
Paul Wilson, a Consumer Finance Expert at Little Loans, commented on the upcoming deadline and warned affected workers may have less time to act than they realise.
Mr Wilson explained: “The payment on account deadline is at midnight July 31, so by that time on that date, you should have paid the required amount to HMRC.
HMRC tax credits renewals are due by Saturday – what’s needed? [EXPERT]
DWP issued ‘eye-watering’ £87.9m tax bill due to IR35 problems [INSIGHT]
HMRC confirms travel restrictions may alter how UK workers pay NI [WARNING]
“It is worth noting that this year the payment on account deadline falls on a Saturday, so it is advised that you ensure your payment reaches HMRC by Friday, July 30, (the last working day before the deadline) to ensure you avoid any interest charges.”
Mr Wilson went on to break down the key areas people should focus on for this charge.
How do I go about making this payment?
Due to the tight deadline, Mr Wilson noted the self-employed should head online.
Mr Wilson said: “The best way to make this payment is to transfer the money to HMRC via online banking or telephone banking as these methods typically use faster payments and the money is likely to appear in the HMRC account on time.
“You can find details of where your payment needs to be sent on this page of the government website – you will need your unique taxpayer reference number when you pay.
“If you can’t pay using online or telephone banking there are alternative ways to pay including cheque and direct debit. These can take longer to process so you should ensure that if you are paying via one of these alternative methods you make the payment in plenty of time.”
Self-employed workers can still benefit from SEISS (Image: EXPRESS)
What happens if I miss the deadline?
Mr Wilson reiterated the importance of hitting this deadline, as he warned: “If you miss the payment deadline you could be charged interest on the outstanding amount until the payment is made.
“If the outstanding payment is still unpaid 30 days after the payment deadline then you could also be charged a penalty fee equal to five percent of the outstanding amount.
“There are two further five percent penalty fees that could be charged if the outstanding amount is still unpaid five and eleven months later.”
While missing the deadline would be costly and should be avoided where possible, Mr Wilson noted there is no need to panic if it is missed.
What should I do if I have missed the deadline?
Mr Wilson concluded: “If you have missed the payment deadline then there is no need to panic as the interest charged is likely to be fairly negligible if you are only a couple of days late.
“You should try to make the payment on account as soon as you possibly can, and certainly within 30 days of the deadline passing to avoid incurring the five percent penalty.
“If you are having trouble making the payment due to financial difficulties then you can contact HMRC to arrange a payment plan.”
“It is also worth remembering that payment on account is an advanced payment towards what HMRC thinks your tax bill will be next tax year.”
“If your income for the next tax year has been reduced for any reason you can ask HMRC to have your payment on account amount reduced. This is easy to do online via your HMRC online account. “Some people may choose to reduce their payment on account amount if they are having difficulty paying the bill, hoping that next year they will be in a better financial situation. But this should be done with caution, as you may only be delaying the payment and adding expense further down the road.”