Personal tax – when is income tax and capital gains tax payable?

Under self-assessment, individuals are responsible for calculating their tax liability and ensuring that any tax owed is paid on time. At AHACCOUNTANTS, we can prepare your tax return on your behalf and advise you on any payments that may need to be made to HMRC.

Payment of Tax

The UK income tax system typically requires certain income sources to have tax deducted at source, reducing the need for many taxpayers to submit a tax return or make additional payments. This is particularly applicable to employment income. Interest is now received gross of tax, but the savings allowance often exempts most taxpayers from having to pay tax on such income. However, for self-employed individuals or those with substantial investment income, tax deduction at source is not applicable. As a result, a payment regime is in place where payments are generally made in instalments.

The instalments consist of two payments on account of equal amounts:

• The first on 31 January during the tax year.
• The second on 31 July following the tax year.

These payments are based on the previous year’s net income tax liability (and Class 4 NIC, if applicable).

A final payment (or repayment) is due on 31 January following the tax year. It’s important to note that any tax attributable to capital gains is ignored when calculating the level of instalments; all capital gains tax is paid as part of the final payment due on 31 January after the end of the tax year.

A statement of account, similar to a credit card statement, is periodically sent to the taxpayer, summarising the payments required and those already made.

Example

Sally’s income tax liability for 2022/23 (after tax deducted at source) is £8,000. Her liability for 2023/24 is £10,500. The payments will be as follows:

Additionally, there will be a payment on 31 January 2025 of £5,250, the first instalment for the 2024/25 tax year (50% of the 2023/24 liability).

Late Payment Penalties and Interest

HMRC may charge the following penalties for late tax payments:

• A 5% penalty if the tax due on 31 January is not paid within 30 days (the penalty date is the day following).
• A further 5% penalty if the tax due on 31 January is not paid within 5 months after the penalty date.
• An additional 5% penalty if the tax due on 31 January is not paid within 11 months after the penalty date.

These penalties are in addition to interest charged on all outstanding amounts, including unpaid penalties, until payment is received.

Nil Payments on Account

Where the total income tax due is modest after accounting for tax deducted at source, the two payments on account may be set at nil. This applies if:

1. The income tax (and NIC) liability for the preceding year, net of tax deducted at source and tax credits on dividends, is less than £1,000 in total.
2. More than 80% of the income tax (and NIC) liability for the preceding year was met by tax deducted at source and tax credits on dividends.

Claim to Reduce Payments on Account

If it is anticipated that the current year’s tax liability will be lower than the previous year’s, a claim can be made to reduce the payments on account. We at AHACCOUNTANTS can advise you on whether a claim should be made and the appropriate amount.