SELF-ASSESSMENT taxpayers need to act now or they could face big penalty charges.
The deadline for dealing with your second "payment on account" bill is midnight on July 31.
If the deadline is missed you will be charged interest on the amount owed.
The interest is set at 2.5 percentage points above the Bank of England base rate and currently stands at 7.5%.
This is due to be reviewed in August, so that rate could potentially increase further.
What are 'payments on account'?
Payments on account are two advance payments that most self-assessed taxpayers must make each year in order to settle their tax bills.
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The first payment is due by midnight on January 31 and the second by midnight on July 31.
The payments are usually based on half of your previous year's tax bill, but you can apply to lower them if you think your tax bill will be substantially lower.
If you apply to lower the payments but still owe extra tax when you have made both of the payments you will need to make a balancing payment.
This will need to be paid by midnight on January 31 next year.
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As well as the income tax you owe – if you're self-employed your payments on account will include Class 4 National Insurance contributions.
But the payments do not include any money you might owe for capital gains tax or student loans.
Both of these will be added to your "balancing payment".
Who has to pay?
Anyone who is self-employed and has been self-employed for at least a full year will need to make these payments, but there are a few exceptions.
You will not be required to make the two payments unless:
- your last self-assessment tax bill was less than £1,000
- you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings.
The payments on account system also apply to those who have other sources of untaxed income that exceed the threshold set by HMRC, such as a rental property.
What happens if you miss the deadline?
Payments on account are advance payments and are not subject to the same serious penalties as if you miss your "balancing payment" deadline on January 31.
There are not any fines involved until January 31 but you could be charged interest on what you owe.
As we mentioned earlier the interest rate at the moment is currently 7.5%.
If you haven't fully settled your bill by the January deadline you will face penalty fines.
After 30 days you will have to pay a charge worth 5% of the outstanding tax.
Every six months you let pass after that, the 5% charge will be added again.
You can sometimes appeal the fines if you have a good reason for missing the deadline.
If you're going to struggle to pay the tax you owe, contact HMRC as soon as possible.
They'll ask you for a payment proposal such as paying monthly or quarterly instalments.
How can I pay my bill?
There are several ways you can pay, although bear in mind that you can no longer pay your tax bill a the Post Office and HMRC does not accept personal credit cards.
To get the payment there on the same day or the next day you can use the following methods:
- Use Faster Payment or Chaps
- Pay via online and telephone banking services
- Use a debit card or a business credit card
You can also pay by Bacs or cheque – but bear in mind this could take around three days, and longer for cheques if there is a postal strike.
Payments can also be made via the free HMRC app.
What other fines can I be charged for missed deadlines?
Failing to file your tax return online by January 31 could see you faced with an initial penalty fine of £100.
After three months, this increases to £10 a day for up to 90 days.
Thousands of low-income workers were fined by HMRC for not filing a tax return even though their earnings fell below the threshold.
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Making a mistake on your self-assessment form can also land you with a hefty fine.
Last year tax specialists at Thomson Reuters reported that HMRC issued more than 18,000 penalties to taxpayers for careless mistakes they made on their tax returns.
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