Payments on Account – your deposit account with the Revenue

Paula Veysey Smith • 25 September 2017

Payments on Account – your deposit account with the Revenue

Payment on Account is a tax payment made twice a year by self employed people, and also Director Owners taking dividends, in order to spread the cost of the year’s tax. It is calculated by looking at your previous year’s tax bill, and is due in two instalments.

The Payment on Account can be thought of as a way of paying off some of your tax bill in advance. The first instalment is due on 31st January (the same day as your ‘balancing payment’, which clears your tax bill for the previous tax year), and the second is due on 31st July. For those of you entering the payment on account regime you will have to pay the tax due and then 50% again for the payment on account; the second 50% being due on the 31st July. It is intended to help you spread your payments out during the year – and, of course, to help provide the Exchequer with a financial boost in the middle of the year. In reality, it does facilitate the bringing forward of paying taxes as the tax due in any given year is paid in that year.

So each of the two instalments of the Payment on Account will normally be 50% of your previous tax bill. So, if you paid £10,000 in the tax year for which you are filing your return, you will make the first Payment on Account of £5,000 on 31st January, and another payment of £5,000 on 31st July. This will include Class 4 National Insurance Contributions where applicable, but not student loan repayments or Capital Gains Tax.

There are some circumstances in which a Payment on Account will not be due. If your tax bill for the previous year was less than £1,000 after PAYE or other deductions at source, no Payment on Account is necessary. Similarly, no Payment on Account will be due if, in the previous tax year, 80 per cent or more of your tax was deducted at source.

You can also apply to have the Payment on Account reduced if you have a good reason to believe that you income in the following year will be less; this is often the case with dividends as a year with a high dividend declaration may be followed by a year with lower dividends and hence a lower overall tax bill. However be warned, if you do lower your payment on account and it turns out that you should have paid more the Revenue could charge you interest on the underpayment.

Your first payment on account is always painful but it is less so if you consider it really a deposit in your Revenue bank account . . . and that means more of the money in your bank account is yours to spend

Paula

From Corporate Finance to Business Owner

by Paula Veysey-Smith • 5 June 2025

The Power of Mentorship in Tracy Bland’s Success

Working from Home Expenses You Can Claim in 2025–26

by Paula Veysey-Smith • 22 May 2025

Do you work from home? If you do, either full-time or part-time, you may be eligible to claim certain expenses either against your own taxes or your Limited Company ones. Many factors will determine what you can claim such as working location, employment status (employee, self-employed, company director), and how much of your home is used for work. What can I claim as an employee of a company? You can claim: A flat-rate allowance of £6 per week (or £26 per month) without needing to provide evidence of expenses. This is the simplest method and can be claimed via your tax code or tax return. The actual costs (if you don't use the flat rate) which can include a proportion of the following: Heating and electricity Internet and phone bills Water (if it’s metered and usage is clearly work-related) You cannot claim rent or mortgage interest unless you're self-employed. These expenses can be claimed via HMRC’s online portal if they have not already been reimbursed by your employer! What can I claim if self-employed (sole trader or via a Partnership)? Here you have two options: 1. Simplified Expenses (Flat Rate) Based on hours you work from home each month: 25–50 hours/month → £10/month 51–100 hours/month → £18/month 101+ hours/month → £26/month 2. Actual Expenses Method You can claim a proportion of: Rent or mortgage interest (not capital repayments) Utilities (gas, electricity, water) Council tax Internet and phone Cleaning and maintenance Home insurance (if work-related) You’ll need to work out the percentage of your home used for business, usually by the number of rooms (not including bathrooms, corridors, storage space) or square footage. One word of warning is never claim the whole use of a room for business as every room will have duality in use. This is also important if you own your home as a room declared purely an office could attract Capital Gains Tax when the property is sold. We suggest that any room should only be claimed at 90% for business. And only one room can be used, not a multiple! These costs should be included on your Self-Assessment tax return. Can I make a claim for these expenses in my Limited Company? Yes, you most certainly can. At MPower Accounting we not only recommend using the actual expenses method as set out above, we provide our clients with a bespoke spreadsheet to calculate these expenses, and others such as mileage, on a month-by-month basis. These amounts can then be claimed as expenses to the Company and paid out to you. It is one of the tax efficient methods of taking money from your business. Capturing and calculating monthly your regular working from home expenses is the best way of ensuring they are recorded correctly. To help you do this we are offering a free download of the spreadsheet usually only available to our clients; please use the link below to get this. Paying taxes is a necessary evil but I am a firm believer in minimising this liability for both individuals and companies. Correctly claiming working at home expenses is one way to reduce your tax bill. Please do contact us if we can help you further identifying all the expenses you can claim and also for further assistance in how to correctly use and populate the downloaded template.

Tax Efficient Salary for Directors in 2025-26

by Paula Veysey-Smith • 28 April 2025

Key changes in Employer National Insurance (NI) rates and thresholds for the 2025-26 year have meant advice on the tax efficient salary for Directors has significant altered.

A box of receipts sits on a desk next to a lamp and calculator - Making Tax Digital

How will I be affected by Making Tax Digital for Income Tax (MTD for ITSA)?

by Paula Veysey-Smith • 23 March 2025

HMRC are starting to send out letters to sole traders and landlords in the initial steps towards Making Tax Digital for Income Tax. If you receive one of these letters do not panic, help is at hand. So let’s answer your most asked questions about Making Tax Digital. What is Making Tax Digital for Income Tax? Making Tax Digital for Income Tax (MTD for ITSA) is a UK government initiative aimed at modernising the tax system. It will require individuals and businesses to keep digital records and submit tax information to HMRC using compatible software. It is part of a broader initiative to digitalise tax returns and follows on from the changes already implemented for VAT reporting. Will Making Tax Digital affect me? MTD for ITSA will affect individuals who: Are self-employed (e.g. sole traders) and/or landlords (earning income from property). Have a total income over £50,000 per year (combined from self-employment and property). Are currently required to complete a Self-Assessment tax return. From April 2026 , MTD for ITSA will be mandatory for those earning over £50,000. From April 2027 , this threshold will reduce to £30,000. What will I have to do if my earnings are over the threshold? You will need to keep digital records for income and expenses which will mean using MTD compatible software. This will be a major change for those of you still keeping paper records. Instead of submitting an annual self-assessment return you will need to submit quarterly updates 4 times a year to HMRC. At the end of the tax year an End of Period Statement (EPOS) and a Final Declaration will need to be submitted which essentially replaces the current Self-assessment return. All of these will be required digitally, paper records and manual calculations will no longer be accepted. This means that instead of 1 annual return you will need to make 6 submissions! So what software do I need to use to keep digital records? Acceptable software include: QuickBooks Xero FreeAgent Sage or, HMRC-recognised spreadsheet tools with bridging software ( not highly recommended ) No more shoeboxes of receipts or manual books — everything must be digitally recorded. When will I need to register for MTD? You’ll need to sign up for MTD for ITSA before April 2026 . This is a deadline and not a target, signing up early is always advisable. HMRC will provide a service for you to do this but having the guiding hand of an accountant will make this a much easier task.

Payments on Account – your deposit account with the Revenue