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Amid continuing economic uncertainty, many Self Assessment taxpayers will be concerned about managing tax bills and cash flow. This is particularly important with July payments on account looming.
Does this affect me?
If you are a self-employed professional, business owner or landlord who completes Self-Assessment tax returns, this will affect you.
The basics
The deadline for taxpayers who are registered for Self Assessment to make their second payment on account for the 2024/25 tax year is 31 July 2025 and failure to do so will incur interest.
Many taxpayers will already have received Self Assessment statements from HM Revenue & Customs (HMRC) through the post, reminding them of the payment they are required to make by 31 July. But even if you have not received a statement, you should still check your position as soon as possible, because you will still need to make a payment on account if one is due.
The nuts and bolts
Your Self Assessment income tax and Class 4 National Insurance contributions (NIC) for any tax year is normally due on 31 January after the end of that year. However, depending on your circumstances, you may need to make two payments on account – one on 31 January during the tax year and the other on 31 July immediately after the end of the tax year.
This will be the case unless either:
- Your Self Assessment tax liability for the previous year was less than £1,000; or
- You paid at least 80% of your tax liability through PAYE.
If you are caught, then each payment on account for 2024/25 is calculated as 50% of your Self Assessment tax and Class 4 NIC liability for the 2023/24 tax year. And the deadline for making your second payment on account is 31 July 2025. If you miss this date, interest will be charged at a punitive rate of 8.25% per annum.
Maximising your cash flow
Payments on account are designed to improve the Treasury’s cash flow, and conversely they can create cash flow issues for taxpayers. This is especially so where profits fluctuate widely, with the tax on a highly profitable year falling due during a leaner year when cash may be tight. (A measure of relief is available for farmers and creative artists, via the averaging of profits, but not for other taxpayers.)
If your taxable income for 2024/25 has decreased compared to 2023/24, then paying your payments on account in full will mean that tax is overpaid. HMRC will not repay the excess until your tax return has been submitted – and they will only pay interest at 3.25% compared to the 8.25% they charge on underpayments.
To improve your cash flow, you could instead make a formal application to HMRC to reduce your July payment on account. But be sure not to exaggerate your claim, because you will be charged interest at 8.25% from the original payment due dates on any reduction which proves to be excessive – and HMRC can even charge a penalty in particularly egregious cases.
It is also worth noting that, if your taxable income for 2024/25 has increased compared to 2023/24, then the balance due over and above the January and July 2025 payments on account will not be due until 31 January 2026, effectively providing 6 months interest free credit.
What you should do now
Consider whether a reduction in your 2025 payments on account is warranted, and if so, be sure to submit a claim to HMRC as soon as possible.
We’re Here To Help
To find out more about how managing payments on account could improve your cash flow please contact one of the team on 0330 058 6559 or email hello@scruttonbland.co.uk
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