As we approach the end of July, it’s crucial for taxpayers to be aware of the second payment on account deadline for the 2023/24 income tax self assessment (ITSA) and class 4 national insurance contributions (NIC). This payment is due by 31 July 2024.

What is the Payment on Account?

The payment on account is a prepayment towards your income tax and NIC liabilities for the tax year. If you’re required to make these payments, they are calculated based on your tax liabilities from the previous year, in this case, 2022/23.

Here’s a quick breakdown:

  • First Payment on Account: Due 31 January 2024
  • Second Payment on Account: Due 31 July 2024
  • These payments help spread the cost of your tax bill and are each equal to 50% of your previous year’s tax liability.

Who Needs to Pay?

You will need to make a payment on account if:

Your total ITSA and class 4 NIC liability for 2022/23 was £1,000 or more, and

Less than 80% of your income tax and NIC for 2022/23 was deducted at source (e.g. through PAYE).

Why You Should Pay Attention

Missing the 31 July deadline could result in costly penalties. HMRC currently charges an interest rate of 7.75% on late payments. Therefore, it’s essential to prepare and ensure your payment is made on time.

How to Adjust Your Payment

If you believe your tax liability for 2023/24 will be lower than it was in 2022/23, you might be able to reduce your second payment on account. This can be done in two ways:

  1. Submit Your Tax Return Early: If you complete and submit your 2023/24 tax return before 31 July 2024, your payment on account can be adjusted accordingly.
  2. Apply for a Reduction: If submitting your return early is not feasible, you can apply to HMRC to reduce your payment on account. This can be done online or by completing and mailing a form to HMRC. Your accountant can also handle this through their HMRC account.

Important Considerations

When applying for a reduction, ensure that your claim is accurate. Incorrect claims made fraudulently or negligently can result in penalties up to the amount of the underpaid tax.

Basis Period Reform

Sole traders and partners should be mindful of the basis period reform when completing their tax returns or estimating their tax liability for 2023/24. If your accounts are prepared to a date other than 31 March or 5 April, your tax liability may differ from expectations.

Remember, staying proactive about your tax obligations not only helps you avoid unnecessary penalties but also ensures smoother financial management for the year ahead. Make sure to mark your calendars and prepare for the 31 July payment on account deadline. For further information, please visit the HMRC website here.

Need support?

If you have any questions about payment deadlines or income tax self-assessment, or if you need assistance, please contact in touch with our Tax Partner, Alison Price, at a.price@uhy-uk.com.