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With the deadline for Self-Assessment approaching, it’s important to know both how to make your payments, and when to pay them.

What is Self-Assessment?

The self-assessment allows HMRC to collect income tax. Untaxed income must be included on a self-assessment. It will cover a tax year. Tax years run from 6^th April to 5^th April in the following year.

Who Needs to Complete a Self-Assessment?

You will need to complete a self-assessment if you have income that needs to be taxed. Examples of individuals who need to submit a tax return include:

Those with untaxed income.
Sole traders who have earned more than £1,000 during the tax year.
Directors who have drawn dividends during the tax year.
Those receiving income from rental properties.
Those with a taxable income of over £150,000.
Those who must pay the High Income Child Benefit Charge.

If you are unsure whether you will need to submit a tax return, you can check here.

What are the Self-Assessment Deadlines?

It is important that your self-assessment is submitted on time to avoid penalties. The deadlines are as follows:

Notifying HMRC that you need to submit a tax return – 5^th October.
Paper tax return submissions – 31^st October.
• Online tax return submissions – 31st January.
Payment Deadline – 31^st January.

Each of these deadlines relate to the following tax year. For example, if you started renting a property in May 2023, you would need to submit a 2023-24 self-assessment. You would need to notify HMRC of this by 5^th October 2024. If you were to submit a paper return for this period you must do so before 31^st October 2024, or 31^st January 2025 if it was submitted online. Your tax return payment must be made by 31^st January 2025.

How Do I Pay my Self-Assessment Tax Bill?

There are a variety of methods which can be used to pay HMRC. These include Direct Debit, Faster Payments, CHAPS, and by Cheque. HMRC provide a breakdown of how each payment method works, and what information you will need to make them. You can find this information here.

When paying your tax bill, you should include a specific payment reference. This will be your 10-digit Unique Taxpayer Reference (UTR), followed by the letter “K”. If the wrong reference number is used it can lead to payment delays. You can find your UTR number on your HMRC online account or letters you receive from HMRC.

Paying via Tax Code

If eligible, you can pay your self-assessment tax code using your PAYE tax code. This means that the tax you owe will be automatically collected from your salary like your usual tax deductions. This can only be done if you meet the following criteria:

Your total tax bill is less than £3,000.
You already pay tax through PAYE.
Your self-assessment was submitted before 31^st October by post/30^th December online.

You can’t pay using your tax code if your taxable income does not meet the PAYE threshold, if you would be paying more than 50% of your taxable income in tax, or you would be paying more than twice your usual tax deduction.

If you meet all the criteria, HMRC will automatically collect the tax through your tax code unless specified on your tax return.

Budget Payment Plan

A Budget Payment Plan can be set up with HMRC to make payments towards the tax bill throughout the year. You can choose how much you pay and how often (e.g. weekly or monthly). The amount paid through the plan will be deducted from your next tax bill. If the payments do not cover the bill in full, you will pay the remainder by the deadline on 31^st January. If you have overpaid, you can request a refund.

You can only set up a Budget Payment Plan if your self-assessment payments are up to date. You can check whether you are eligible here.

What are Payments on Account?

Payments on account are advance payments which are made towards your tax bill. You will make two payments a year, each being half of the tax bill from the previous year’s tax return. These payments are due by midnight on 31^st January and 31^st July. If, at the year end, your tax bill is greater than the sum of the payments made, you must pay the difference by 31^st January the following year. This is known as the balancing payment.

For example, if your tax bill for the 2023-24 tax year was £2,500, and the sum of the payments on account came to £2,000 in 2024, the payment you would make on 31^st January 2025 would be £1,750. This is made up of:

£500 for the balancing payment for the 2023-24 tax year.
£1,250 for the first payment on account for the 2024-25 tax year.

Please note that Payments on Account do not include capital gains or student loan payments. These will always be included as a balancing payment.

If you know that your tax bill will be less than in the previous year (i.e. you are now renting out one property rather than two), you can apply to reduce your payments on account. This can be done online via the Government Gateway or by post. You can find more information about this here.

What Penalties can be Issued for Self-Assessments?

The penalties HMRC can issue for self-assessments fall into two categories: late filing and late payment. Both types of penalty can be incurred at the same time.

A late filing penalty of £100 will be charged if the submission is 1 day late. Further penalties will be applied after:

Period	Penalty Applied
3 months	£10 per day, for a maximum of 90 days
6 months	The greater of 5% of the tax owed or £300
12 months	The greater of 5% of the tax owed or £300

For late payments, the penalties will be applied after:

Period	Penalty Applied
30 days	5% of the tax owed
6 months	Further 5% of the tax owed
12 months	Further 5% of the tax owed

If you receive a penalty which you disagree with you can appeal this with HMRC. Appeals must be made within 30 days of the penalty notice date and can be filed either online using a Government Gateway account or by post using an SA370 form. You can find more information about both methods here.

What Happens if I Over/Underpay?

No matter which payment method you use, if you overpay your tax bill, you will receive a refund from HMRC. If you have underpaid, interest will be charged. You will be able to track if your payments have been received on your HMRC online account.

If you have any further questions about paying your Self-Assessment tax bill, please contact us.

On 1^st January 2023, changes were made to fines for late VAT filing and payments. Previously, the default VAT surcharge system was in place. This system meant that you would be fined a percentage of the VAT owed. This started at 2%, then increasing to 5%, 10%, and 15% every time a payment or VAT return was missed.

The new system implements a point system for late submissions, as well as new penalties and interest charges on late payments.

Late Filing Points System

The late filing point system works on the basis that every time VAT is submitted late, you will receive a penalty point. Once the penalty Point threshold is reached, a £200 penalty is applied. A further £200 penalty is issued for every late submission whilst at the threshold. The threshold is dependent on how frequently you submit your VAT return:

Accounting Period	Penalty Points Threshold
Annually	2
Quarterly	4
Monthly	5

HMRC will adjust both the threshold and the points you have been issued if you change your accounting period.

The penalty rules do not apply to the first VAT return, final VAT return, or one-off returns which cover a period other than those listed in the table above.

HMRC will issue a penalty decision letter to your registered business address if a penalty or penalty point has been given. This letter will offer a review with HMRC where you will be able to appeal the penalty. Also, penalties can be checked, and reviews can be requested through your VAT online account.

Late Payment Penalties

Late payment penalties have been introduced and can apply to any VAT that has not been paid in full by the due date. This is excluding payments on account and annual accounting scheme installments. The penalty you will receive is dependent on both the number of days that the payment is overdue, and if it is your first penalty:

	First Late Payment Penalty	Second Late Payment Penalty
Payments up to 15 days overdue	None	None
Payments 16-30 days overdue	2% of the VAT owed at day 15	None
Payments 31 days or more overdue	2% of what was outstanding at day 15. Plus 2% of what is still outstanding at day 30.	Daily rate of 4% per year on the outstanding balance. This is charged from day 31 until the outstanding balance is paid in full.

A period of familiarisation has been implemented until 31/12/2023. This means that first late penalties will not take effect if a payment is made within 30 days of the payment due date.

Much like the late filing penalties, HMRC will notify you of a late payment penalty via a penalty decision letter and details of the penalty will be available through your VAT online account.

Late Payment Interest

Late payment interest will now be applied from the first day that a VAT payment is overdue until the day it is paid in full. The interest rate directly correlates with the Bank of England’s base rate. It is calculated as the base rate plus 2.50%. This means that the current interest rate is 7.75%.

Payments that are subject to interest include:

VAT Returns
Corrections and Amendments
HMRC VAT Assessments
Missed Payments on Account
Late payment penalties
Late submission penalties

If interest is being applied to an amount which should be paid in installments, the interest will be charged on the outstanding balance until the tax has been paid in full.

Unfortunately, HMRC does not have an appeals process for late payment interest. However, you can object to the interest for a variety of reasons, such as, you believe HMRC has caused a mistake or there has been any unreasonable delay, you dispute the relevant date or effective date of payment, or you are questioning the legislation. It is important to note that interest objections can only be accepted if the tax relating to the interest has been fully paid. To discuss interest objections with HMRC, contact the VAT General Inquiries Helpline.

VAT Repayment Interest

On the other hand, if you are owed a VAT repayment from HMRC will also be applied. Like the late payment interest, the interest rate is dependent on the Bank of England’s base rate. It is calculated as the base rate minus 1%; the rate is currently 4.25%. Interest will not be applied on early payments or payments made in error (such as paying £2,500 instead of £250).

If the VAT has already been paid to HMRC, the repayment interest is calculated from the later date of either when the VAT was paid or the payment deadline for the period.

If the VAT has not been paid to HMRC, the repayment interest is calculated from the day after the later date of either the payment deadline or when the VAT was submitted.

HMRC will only pay repayment interest if there are no outstanding VAT returns. Because of this, the interest will only be paid from the date that all outstanding VAT returns are received.

The end date for the interest will be when HMRC repays the VAT, or it is set off against a different VAT return. It can also be set off against other types of tax you may owe.

If You Cannot Pay

If you are aware that you will not be able to pay your VAT in full by a deadline, call HMRC’s Payment Support Service for guidance. They have a specific line relating to VAT payments. One option they may propose is a payment plan. You can find out what you will be asked during the set up process, or if you can set up a payment plan online, here. Setting up a payment plan could lead to penalties being reduced.

HMRC offer a flexible plan known as a Time to Pay arrangement which will cover any penalties and interest that has been applied. If this arrangement is put in place before a penalty deadline, the penalties will not be applied. However, if you do not adhere to the conditions of the arrangement and it is cancelled, the penalties will be applied. You can find out more about Time to Pay here.

Contact Us

If you require our services for VAT, or have any further questions regarding your accounts, please do not hesitate to contact us.

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Self-Assessment – How to Pay