Payments On Account

Monday 28 May 2012

Payments On Account

For the second and subsequent years that you are self employed, you may be required to make a payment of Income Tax on account.

A payment on account is an estimate of what your tax bill will be at the end of your accounting year, based on your previous year's profits.

Payments on account are usually made in two instalments on 31 January and 31 July.

In practice this could mean that on 31 January in your second year of trading you will need to pay:

the tax due on your profit from your first year of trading plus
half of the estimated tax due on your profit for the second year of trading

So it will be really important to make sure that you know what your tax liability is as you incur it, so that you can set aside the appropriate amount from the profit you are making in your business.