Second Payment on Account

Taxpayers who completed and submitted a tax return for the year ended 5th April 2022, may be due to pay their second payment on account by 31st July 2023. However, this will not apply to all taxpayers who completed and submitted a self-assessment tax return by 31st January this year.

Taxpayers should have been made aware if they are required to make payments on account when they submitted their 2021-22 self-assessment tax return. A payment on account is only required from a taxpayer, if their 2021-22 self-assessment tax liability was greater than £1,000; and less than 80% of their income tax for the year was collected via PAYE. This would been evident on their 2021-22 Tax Payment Summary.

However, as the payment date is fast approaching some taxpayers may be unable to pay their second payment on account because 2022-23 was not as successful as 2021-22. So, what can the taxpayer do?

Whether the taxpayer has had a more or less successful year they should have sought professional assistance or have completed their self-assessment tax return already, as 31st July is around the corner. This is especially the case if they had PAYE income for 2022-23 because every employer has a legal obligation to give their employees their P60 by 31st May. However, it is quite sad to learn that some employers fail to fulfil their statutory duty for a range of excuses.

A taxpayers’ early preparation of their 2022-23 self-assessment tax return would be advantageous to them. To those taxpayers who regard the 31st January deadline as a target, sadly, they’ll pay the price of for their procrastination and misunderstanding that deadline and target are not synonymous.

The early preparation of the 2022-23 selfassessment tax return will enable a taxpayer to determine their tax liability for 2022-23 before making their second payment on account. Moreover, if they have already made a first payment on account in January 2023, such that this payment covers all or the majority of their 2022-23, income tax liability, then they can apply to reduce their second payment on account which is due and payable on or before 31st July 2023.

However, whilst some taxpayers prefer to estimate their income tax liabilities at this juncture in the year, it is advisable that they should be working with the actual position. Why? If a taxpayer is unfortunate and their estimates are incorrect and they fail to pay their second payment on account, they immediately have earned themselves a penalty and interest for late or non-payment of their second payment on account. Therefore, it is always advisable to operate with the actual position rather than what one hopes, expects, or wishes the tax position will be. Hope is never an effective tax strategy.

To reduce the second payment on account, if a taxpayer expects their income tax liability to be less than the sum of their two payments on account, they should apply to HMRC. The process requires the taxpayer or their agent to complete a SA303 form. The most effective way of submitting a SA303 is via a taxpayer’s HMRC online service account. If taxpayers, do not have a HMRC online account, they will not be disadvantaged. HMRC are still accepting SA303 via the post. However, the only challenge for taxpayers is whether their SA303 has arrived and how long it may take for HMRC to process and acknowledge.

To reduce payment on account a SA303 must be completed. If a taxpayer just pays the reduced amount their HMRC account will still show a balance outstanding as HMRC has not been notified of the revised amount. Therefore, it is advisable that if a taxpayer has computed a reduced income tax liability than required by their second payment on account, a SA303 is completed and sent to HMRC preferably online or via the post.