Time To Pay Your Tax

As the personal tax filing deadline of 31st January 2020 is looming, so is the next tax payment due date. At this time of year we get asked a lot of questions about paying tax, such as;

• Why have I got to pay tax?

• How has my tax liability been calculated?

• Why do I have to repay my student loan?

• Can I pay my tax early?

• What happens if I pay my tax a few days late?

• How do I pay my tax?

• What should I do if I can’t afford to pay my tax?

• Can I arrange a payment plan to pay in instalments?

• Can I ignore it until it goes away? (no, absolutely not by the way)

• And what exactly is a “payment on account”?

People are often surprised to be reminded that the deadline for filing your personal tax return and paying your personal tax is midnight 31st January following the end of the tax year – meaning the later you do your tax return in the year, the less time you have to plan and find the funds to pay HMRC. So let’s answer a few of your questions here;

How is my tax bill calculated and what do I need to pay?

Once your tax return has been prepared, it will be possible to calculate how much tax you owe for that year. This will be based on your amount of income and capital gains arising in that tax year less any tax already paid and allowances utilised, plus any restrictions or additional payments due such as repayment of student loan and child benefit. The ultimate tax liability is then calculated on a prescribed tax formula. In some instances (depending on your level of earnings), the repayment of student loan and child benefit can end up increasing your tax liability quite substantially and may not be something you have planned for. Child benefit is fully repayable once the highest earner exceeds £60,000 of income, whereas student loan is repayable at a rate of 9% when you earn over £18,330, (depending on loan plan and based on the rates for the 18/19 tax year).

Although the personal tax payment due date is 31st January (and 31st July for second payment on account), it doesn’t matter if you pay your tax early rather than spend it! In some instances you may even be entitled to repayment supplement interest for paying early. However, if you pay your tax late, you will be subject to interest at the HMRC rate of 3.25%, which will accrue on a daily basis. There is no immediate penalty for paying your tax late but there will be a 5% surcharge if you pay your balancing payment more than 28 days after the due date, and a further 5% surcharge will kick in after six months. This does not apply to payments on account.

How are my payments on account calculated?

Payments on account are normally due if your tax and Class 4 NIC bill is in excess of £1,000, or you’ve paid less than 80% of your tax at source. There may be times when you may have additional income exceeding the de-minimus for payments on account and not enough taxed at source, so payments on account become due and can be a surprise.  Payments on account are automatically calculated and required to be paid in advance of the following tax year, based on the tax return just prepared and are based on 50% of the tax and Class 4 NIC due, payable on 31 January following the year-end and then the following 31 July.  There are instances where you can reduce your payments on account if you know your tax bill is going to be much less next year but if they are reduced incorrectly or too much, interest will become due, and possibly penalties if there is intent to reduce incorrectly. Therefore if you are new to Self Assessment you might be surprised to see another 50% added to your tax bill if you haven’t budgeted for this.

How do I pay my tax?

You can pay your tax to HMRC by BACs using their bank details;

Sort Code                        08-32-10 Account Number             12001020

You must make sure your personal Self-Assessment tax reference (UTR) are used as reference for the payment so it can be allocated correctly for you. Alternatively you can pay direct through HMRC’s website here:

What do I do if I can’t pay?

If you haven’t budgeted for your tax and can’t afford to pay it, there are options for you to consider. Firstly you could look at finance options, either through normal lending or you can make use of specific tax payment finance facilities. We partner with different finance providers so can help you source. Otherwise, you may be able to arrange a ‘time to pay’ arrangement with HMRC. Provided you haven’t abused this facility many times before, HMRC will often make an agreement with you to spread your tax payments over an agreed period of time. Although interest will still be chargeable in the usual way, they will waive all surcharges, but you need to ensure this is arranged before the tax payment due date. You can give them a call and will need to go through your personal finance details but they are usually helpful. You can find more information on the Business Support Services that HMRC offer, click here.

Getting in to good habits within your business and tax affairs – the little and often but consistent ones – will serve you well in the long run so make sure you are in the habit of keeping receipts, matching them with expenses, keeping money aside for your tax, and planning well in advance. We do recommend that you do your Tax Return as early as possible so you have plenty of time to plan for any tax liability and this can be done as early as April straight after the tax year-end. The payment deadline will still remain regardless of what date you file your Tax Return so there is no reason to put it off. So if you want to avoid any surprises for 2020, get your Tax Return done early and enjoy that smug feeling you’ll be entitled to.

It’s never a pleasant experience paying your tax, but just remember we don’t make the rules!

FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.