“Millions of newly self-employed individuals are being caught off guard by the UK’s payments on account system, which can result in a January tax demand of up to 150 per cent of their previous year’s bill. Under self-assessment, taxpayers must settle their full prior-year liability while also paying an advance towards the current year, based on the assumption that profits will remain similar. This system, administered by HMRC, is intended to prevent arrears and mirror PAYE, but it can be deeply unsettling for those with fluctuating incomes. Many first-time filers are unaware they can apply to reduce payments on account if earnings are expected to fall, or arrange a time-to-pay plan to spread the cost. Failure to act can lead to interest and penalties. Early planning, accurate forecasts, and professional guidance are essential to avoid unnecessary financial strain and to stay compliant with HMRC rules.”
Quotation by Nigel Holland.
• First-year self-employed taxpayers may face a 150 per cent January tax payment.
• Payments on account assume similar earnings in the following tax year.
• Income volatility can justify reducing advance tax payments.
• Time-to-pay arrangements can ease cash-flow pressure.
• Late payment attracts interest and possible penalties.
For further guidance on self-assessment and managing payments on account, see https://www.hollandandcompany.co.uk.
Photograph credit and profile: https://www.hollandandcompany.co.uk/about-us/meet-the-team/nigel-holland1/
Self-employed tax
HMRC compliance
Cash-flow planning
Payments on account
UK tax advice
