If you are a sole trader, self-employed contractor, or start-up company director, and completed your first year of trading in 2021/2022, your first Self-Assessment (SA) tax payments will become due on 31st January 2023. In this short guide, we’ll show you how to pay your contributions online. HMRC has made the process of paying self-assessment tax online fairly straightforward, with the option to make payments directly from your bank account via a payment link in your HMRC online account.

Who Needs To Pay SA Tax?

Anyone who earns income that is not taxed at source (e.g. PAYE income tax through a company payroll) is obliged by law to file a self-assessment tax return online, providing details of their earnings for the previous financial year.

Taxable income includes:

⮚ Self-employed income
⮚ Benefits in kind
⮚ Dividend payments from shares
⮚ Income from property and investments

Your self-assessment tax liability will be calculated after you complete and file your online tax return – after which you can make self-assessment payments online at any time before the due date.

When Do You Need To Pay?

The two key deadlines for SA tax payments are 31 st January and 31 st July.

31st January: All outstanding SA tax liabilities from the previous year are due by this date (a balancing payment’), plus your first ‘payment on account’ for the current tax year – which is 50% of the value of the previous year’s total tax bill.

31st July: Your second 50% payment on account becomes due. If your income is the same year on year, your tax liability will be settled, and you will not need to pay a balancing payment the following January. However, if your income increases, a balancing payment will become necessary.

How To Pay

First, complete your online self-assessment tax return and view your tax calculation. There are several ways to pay your tax bill:

1) Payment link to your online bank account – a link will take you directly to a payment portal, allowing you to approve the payment through your bank. The money will reach HMRC the same or the next day.

2) Credit or debit card – payments can be made from your HMRC online portal. Personal or business debit cards are accepted, but only corporate/commercial credit cards – personal credit cards cannot be used.

3) Online or telephone banking – log onto your online account or access telephone banking in the usual way, and make the payment using the HMRC bank details and SA reference number which is given on your HMRC online portal. Payments should reach HMRC the same or the next day.

4) Direct Debit (DD) – you can set up a DD for payment through your HMRC online account and approve it through your bank. Payments can take three days to reach HMRC.

5) Off-line at your bank or building society – payments can be made at your bank or building society using an HMRC paying-in slip. Payments will arrive on the same or the next working day.

6) Cheque – HMRC accepts SA tax payments sent by cheque through the post. Please allow three days for payments to clear.

Payments can be viewed through your HMRC online account, which shows the amounts paid and any outstanding balance. It may take up to 7 days before your payments appear on your account.

Late SA tax payments may be subject to interest and late payment penalties.

Should I Use An Accountant?

Paying your tax online is relatively fast and easy. However, the amount you pay is based on the information provided on your SA tax return. Factors that impact your tax bill include pension contributions, charitable donations, income already declared through the payroll, trading losses, student loan repayments, and other considerations.

Many sole traders, landlords, and company directors find it beneficial to work with an accountant while filing their self-assessment tax returns – especially in the early years of trading – as failing to include all relevant information may lead to you paying too much tax. An online tax return can also be time-consuming; working with an accountant can save valuable time and reduce the stress involved with fulfilling tax liabilities. With the introduction of Making Tax Digital from April 2024, many sole traders and landlords will need the help of an accountant to set up new systems and software which will be needed in order to submit digital quarterly returns.

If you have any questions about self-assessment and how to manage your liabilities, please call one of our small business accountants today on 020 8629 1530.