How to reduce your self assessment payments on account?

 Whether you're familiar with Self Assessment payments on account or not, we're sure you'd like to know how to lower them.

But, before we get into how to reduce payments on account, let's talk about why you're being asked to make them in the first place.

What exactly are self-assessment payments on account?

Self Assessment payments on account are a UK tax obligation that is triggered when your tax bill for any given tax year exceeds £1,000. This applies to sole proprietors, partners, and the majority of limited company directors.

Each Self Assessment payment on account is an advance payment toward the following year's tax bill, and is due on two dates each year: January 31 and July 31. Each payment equates to 50 percent of next year’s estimated tax bill, based on your last tax return.

It does, however, help to explain why the January bill can be financially painful, especially the first time we are asked to make an account payment.

In addition, we have an accounting firms directory website where you may post your accounting-related business information.

Why does HMRC require me to pay in advance?

what HMRC assumes that your next tax return will be similar to the one you just filed. Their goal is to alleviate the financial stress of attempting to pay a large tax bill in January of each year.

This method of payment distribution can be advantageous, particularly for businesses with a consistent stream of revenue or directors who receive regular dividends.

It is less useful for seasonal businesses or directors whose dividends are erratic. You can, however, request a reduction in payments on account if profits or taxable income fall.

What if my tax bill next year is lower than it was this year?

If your sole trader profits or dividends are reduced and you anticipate a lower tax bill, you can apply to reduce your Self Assessment payment on account. You can do this either when you file your tax return or later.

You can ask your accountant to make the request to reduce your Self Assessment payment on account when you submit your tax return. Alternatively, if you prepare your own tax return, look for the question near the end of the tax return form asking if you want to reduce your payments on account. You must justify this to HMRC by explaining why you are making such a request.

Please see the example below to ensure that your request is reasonable.

If you falsely request a reduction in payments on account, HMRC may charge you interest on the underpaid amount – that is, the difference between what they estimated and what you declared.

How to Reduce Self-Assessment Account Payments

If you intend to do this yourself, you should go over the example below to ensure that you have calculated the reduction correctly. Alternatively, tell your accountant what your current earnings are for the current tax year (on which payments on account are based), and they will make the request on your behalf.

If you make an unreasonable request to reduce your account payments, HMRC may refuse. However, they are more likely to accept your declaration.

Instructions in detail

Once you've calculated your likely tax bill and determined how much you can reduce your payment on account (see example below), you can:

1. Enter your Government Gateway user ID to access your HMRC services online account.
2. On the homepage, scroll down to the Self Assessment box.
3. Choose 'Amend Self-Assessment Return.'
4. From the top right-hand menu, select 'Tax Return Options.'
5. Select 'Reduce account payments' from the top right-hand menu.
6. Enter the sum you're willing to pay.
7. Tick the box next to the reason that best describes why you're submitting the request.

What if I am unable to pay my tax bill?

You can request a payment plan if your business is seasonal, if you have been affected by Covid-19, or if you are unable to pay for any other legitimate reason.

How to Make a Payment Plan Request BEFORE you are due to make an account payment

1. Enter your Government Gateway user ID to access your online account.
2. On the homepage, scroll down to the Self Assessment box.
3. Choose 'Create a payment plan.'
4. Then, in order to request a payment plan, answer each question as it is asked.

Finding best Accountants in Battersea has never been a straightforward process. A team of accounting professionals has worked hard to make sure the accountants on our platform have been carefully selected and confirmed. They are also available to respond to your inquiries immediately.