Brits paid HMRC more than £28.3bn via tax returns in the 2017-18 tax year – and if you pay by self-assessment, you’ve got just a week before your next tax installment is due.
By 31 July, you may need to pay up to half the tax that HMRC expects from you this year, if you’re self-employed, or have a substantial income that’s not paid via your employer or pension provider.
Which? explains how much you have to pay, and what to do if you can’t meet the deadline.
- To get a headstart on your 2017-2018 tax return, you can use our simple, jargon-free tax calculator and file direct with HMRC.
How much tax do we pay?
Over the 2017-18 tax year, HMRC received £181bn in income tax, of which 15%, or £28.3bn, was paid via self-assessment.
That tax take is slightly down from the year before (£28.5bn), partly because the amount most people can earn tax-free rose to £11,500.
A further £130bn was paid in National Insurance, through both PAYE and self-assessment.
The bulk of self-assessment income tax is paid in the lead up to January 31, when online tax returns, balancing payments and the first advance payment for the next year are due. But there’s a second deadline – 31 July, just one week away – for anyone who files a tax return to stump up the rest of what HMRC thinks they’re likely to owe.
This system, known as ‘payment on account’, could catch some unawares.
HMRC says that it asks people to make advance payments so they don’t need to find a big sum at the end of the tax year. But it also means that the tax office gets paid much earlier.
Who has to make payments on account?
Unless you pay very little tax (less than £1,000) or you pay most of your income tax through the PAYE system, you’ll probably need to pay your taxes in advance.
You’ll be notified whether you’ll need to make a payment on account for the following tax year when you submit your annual return.
HMRC will assume you’re paying the same amount of tax this year as you did last year, and ask you to pay in two instalments, on 31 January and 31 July.
If, when you file your tax return, you find the amount you owe is higher than last year, you’ll need to make a ‘balancing payment’ to settle the difference between what you’ve paid and what you owe.
Payments on account only cover National Insurance and income tax, but not capital gains tax, so that will need to paid as part of your balancing payment.
If your payments on account were too high, HMRC will refund you any overpayment.
- Find out more: paying tax when you’re self-employed
I can’t afford to pay my payment on account. Can I reduce it?
In some circumstances, HMRC may agree to a different repayment plan, such as spreading your payments over a longer period, or allowing you to pay later.
To do this, call HMRC’s payment support service on 0300 200 3835.
If you know you’ll need to rearrange, don’t leave it until the last minute, as they may be less inclined to make alternative arrangements, and the phone line gets very busy close to the tax deadline.
Generally, they’re more likely to agree if they believe you ‘can’t’ pay. You’re unlikely to be granted a different arrangement if you just don’t want to.
You’re likely to be asked about your income and expenditure, and whether you have any other assets like savings or investments that could be used to pay the bill. You’ll also be asked about how you plan to get your tax payments back in order.
Borrowing to make a payment on account
If HMRC won’t agree to extend your deadline, it may be possible to borrow to make your tax payment. Be sure to try your other options before doing this, as you’ll pay interest on the debt.
If you decide to borrow to pay your taxes, remember that HMRC ceased taking credit card payments for taxes in December 2017.
HMRC tells me I missed a tax payment. What should I do?
Many fraudsters pose as HMRC, telling their unwitting victims they have an outstanding tax bill that must be immediately paid.
HMRC won’t call or text you for an outstanding bill, and will never ask for payments in iTunes vouchers or other alternatives to currency. If you receive messages like this, report them to Action Fraud.
If you miss the payment deadline and receive a payment demand, find the number for the HMRC office that sent the letter online and call them directly. The self-assessment helpline can also help if you’ve missed your payment date. You can call it 0300 200 3822.
What happens if I pay my taxes late?
There are late payment penalties if you fail to pay your taxes by the end of the tax year (or miss your tax return). These can run to hundreds, or thousands, of pounds.
The good news is that they don’t apply to missing the payment on account deadline, but they’ll kick in if you miss the deadline for making the balancing payment on 31 January.
The bad news is you can be charged interest for late payments – at 2.5%.
Can I reduce my payment on account?
As HMRC estimates your bill by what you paid last year, if you know you’ll be earning less this year you can apply to have your payment on account reduced.
If you file your tax return online, you can log in to your HMRC account, and click ‘payments on account’. If you don’t file a digital tax return, you’ll need to fill out form SA303.
You’ll need to state the amount you expect to pay, and the reasons you think you won’t be paying as much tax this year.
It’s important not to deliberately underestimate your income to reduce your payment on account. If you do this, HMRC may charge you 2.5% interest on your underpayment.
- If you need a hand with your tax return, the Which? tax calculator let’s you calculate your bill and submit directly to HMRC.