The end of January has a deadline – the self-assessment tax deadline. It looms large for thousands of people and can cause a significant amount of anxiety. But we are here to help – and we know that there are lots of things you can do to make this time of year much more manageable and to make sure that you feel confident about being on top of your taxes.
The first thing to do, of course, is calculate how much you owe. Ideally, you’ll have done this already – or given your accountant plenty of time to do it for you – but if not, now is the time to gather all your information together and crack on filling in your tax return online. Once completed, the system will tell you how much tax you still need to pay for the year 2023/24, plus many of you will have to make your first payment on account (POA), which is 50% of the tax that HMRC estimates you will owe in the financial year 2024/25 ( based on the 2023/2024 Tax year).
Here are some of the questions we are asked most frequently at this time of year:
How do I know what I need to pay?
If you have an accountant, they will prepare your tax return and your business or personal accounts based on the information you send them. This will include the total amount of tax that you will have to pay by January 31 2025, plus any payments on account.
If you don’t have an accountant, you can complete and file your own tax return by logging into your HMRC personal online account.
Paying your tax bill is simple: logging into your HMRC online account, navigating to your self-assessment section, and hitting the pay now button. The system will walk you through the different payment options. It is useful to note down your Unique Tax Reference (UTR) as it is often needed in the payment process. Alternatively, you can set up a payment from your bank account, but make sure the payment reaches HMRC by January 31st so that you are not at risk of a late payment charge. Tip – make sure you use the UTR as the payment reference; otherwise, payments can go missing.
What if I can’t pay?
You should submit your tax return as soon as you can, regardless of whether you can pay the liability by the deadline. Otherwise, you risk getting late filing penalties as well as late payment penalties.
HMRC often offers something called a Time to Pay arrangement, which can help you manage your tax payments. If you think you will struggle to pay, always talk to HMRC – they will actively look for a way to help.
A time-to-pay arrangement will often allow you to spread the payments across several months and will often suspend late payment penalties. Interest on late payments will still be charged.
We recommend that you always speak to HMRC before the deadline and reach an agreement in writing. Nobody should be paying penalties that can be avoided by a simple phone call.
What is a Payment on Account?
Payment on account is a method used by HMRC to help self-assessment taxpayers spread the cost of their taxes. Essentially, you pay your tax bill in two instalments – one in January and one in July. The July instalment is effectively a 50% pre-payment of the amount of tax HMRC thinks you will owe the following January, based on your earnings of the previous tax year. If you earn less than this estimate, you may be entitled to a rebate in the following January – but if you have earned more than the estimate, you will have additional tax to pay, called the ‘balancing payment’.
Payment on Account is standard practice, so you can prepare and plan for it, putting money aside to ensure you can pay the bills at the right time. If you know you have earned more in the current year than HMRC estimated, you should also save some additional money so that you are able to cover a larger tax bill than you originally expected.
When should I do my tax return?
We know that a lot of people leave their tax returns until the very last minute. That’s understandable but potentially risky – you will have very little notice of the amount you owe, and if it works out as more than you thought, you could face anxiety about being able to pay.
Our advice is always to prepare your tax return around the middle of the year – June is ideal. This means you have a clear idea of what you will owe in the following January and plenty of time to prepare.
High earnings in employment should aim to do their Tax returns early as the amount of tax can be a surprise as HMRC tries to adjust their tax codes via PAYE, but it often leads to refunds of tax or surprise tax bills.
If you dread completing your self-assessment tax return, do talk to an accountant. Most people find that it’s far more valuable than they think it will be, and it takes away all the stress and pressure. Most of all, it gives you a reliable source of financial, tax, and accounting advice, which could help you work more efficiently and tax effectively.
Please note: This is not meant to constitute professional advice. It is generic guidance only, and things may have changed since it was written –please always seek specific & tailored advice for your circumstances.