# Payments on Account - what’s the most you can earn?

## Метаданные

- **Канал:** Small Business Toolbox
- **YouTube:** https://www.youtube.com/watch?v=Z-ZEmYk4piE
- **Дата:** 15.01.2026
- **Длительность:** 14:42
- **Просмотры:** 1,524

## Описание

Payments on Account can really ruin your day. In the UK tax system they’re a pre-payment of tax for your next financial year and they don’t just impact the self employed! In this video I’ll explain what payments on account are, how they also hit company directors and how much you can earn without paying them. Please sanity check my figures and let me know if I’ve made any mistakes!

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This is not accountancy, financial, tax or legal advice. Always use a good accountant and legal / financial professional.

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#smallbusiness #selfemployed #tax

## Содержание

### [0:00](https://www.youtube.com/watch?v=Z-ZEmYk4piE) Segment 1 (00:00 - 05:00)

How would you like to pay even more tax? In fact, double the amount of tax that you would normally pay. Well, if you're not careful and you're not prepared for this, payments on account can bite you in the backside. And it doesn't just affect self-employed people. It affects company directors as well. So, in today's video, I'm going to explain what payments in account are and how it might result in you paying tax on work you haven't even done yet. I'm going to explain why it might affect you even if you're a company director. And we'll have a look at the maximum amount of money you can earn before payments on account kick in. So, if you don't want to pay this extra tax, how can you avoid it? Now, to start off with, I am being a little bit obtuse when I say extra tax. Technically, what you're doing is paying some tax in advance, but it can really cause a problem for your business's cash flow if you're not prepared for it. In the world of self-employment in the UK, you do your work throughout the tax year and then you've got basically 10 months to get your tax return done and pay any tax due to HMRC. That's because the tax year runs from the 6th of April to the following 5th of April and then you've got until the following 31st of January to have everything kind of wrapped up. So, let's say you did a job for a customer on the 6th of April in the year 2000, just to keep the date simple. We'll pretend you charged £1,000 for your time. You had no overhead. So, effectively, it was £1,000 profit. And on 20% tax, that would mean that £200 is going to be due to the government, and you end up keeping £800 for yourself. Well, since that tax year wouldn't end until the 5th of April 2001, any tax due to HMRC isn't going to be payable until the 31st of January 2002. And that's a huge 22 months from when you did the work. Very generous, I hear you say. And yes, for very small businesses, that can actually work in your favor in the early days when you're getting things set up. But don't celebrate just yet because HMRC have actually thought about this kind of loophole and that's why payments on account exist. In a nutshell, if your tax bill is over £1,000 for the year, then HMRC are going to want a 50% prepayment for the following year's tax at the same time that you pay the current year's tax. And then 6 months later, you're going to pay the remaining 50%. These payments are due on the 31st of January and the 31st of July. and you really need to be prepared for them. So, let's say you made a profit of £20,000 and after you deduct your personal allowance of £12,570, you're left with a taxable profit of £7,430. At 20%, that's an income tax bill of £1,486 plus £445. 80 in class 4 national insurance. And since that's a tax bill of over £1,000, then payments on account will be due. So on the 31st of January, you'd need to pay £1,931. 80 for the tax due plus £965. 90 as your first payment on account. So your total tax bill would be £2,897. 70. And then just as you've recovered from that, you'd need to pay a second payment on account of £965. 90 on the following 31st of July. And the bad news is this doesn't just affect self-employed people. Payments on account kick in for tax on trading profits. So in other words, self-employment, tax on property income, tax on savings interest, tax on dividends, tax on any other untaxed income. And of course, you've still got your class 4 national insurance to pay. About the only things that don't count towards payment on account are capital gains tax, class 2 national insurance contributions, and student loan repayments. So, I'm sure at this point you're wondering, how can I get away without having to pay a payment on account? And it is possible. All you need to do is keep your profits low enough that payments on account don't kick in. So, what's the most you can possibly earn without a payment on account being due? Well, by my calculation, at the time of filming, the most you can earn before payments on account kick in is £16,416. That would be £16,416 in self-employed profits, by the way. Things get a little bit more complicated with dividends because you've got a dividend allowance and things like that to take into account. But from a self-employed perspective, that works out at an hourly rate of just around kind of £8 an hour. So, well below minimum wage. Here's a calculation on the screen if you want to see how all of that works, but it's probably easier if

### [5:00](https://www.youtube.com/watch?v=Z-ZEmYk4piE&t=300s) Segment 2 (05:00 - 10:00)

I just take you through the self- assessment tax return and show you how it all works on HMRC's actual systems. So, I'm within an actual self- assessment tax return here for the 2024 25 tax year. And to keep the profit figure really simple, I'm basically going to just put it all as turnover with zero expenses. So effectively, we've got 100% profit. So I'm just going to pop that turnover figure in there as 16416. And it makes no difference how many pence you put on this, by the way, because it always rounds down whether or not you go like 90 p. You see, it goes straight to zero or 1 pence, zero. So HMRC very kindly always round down to the closest pound. And you can see down here, if we go down to the bottom, we've got the net profit of 16416. And by the way, just to prove a point here, you could equally say that you made 26,000 uh turnover, but you had 10,000 of allowable expenses. And likewise, that brings the net profit down to the same number. So, it makes no difference. It's just to keep life simple. So, save and continue. And then I've filled in the bare minimum of everything else on this tax return. So we can fly forwards to view our calculation. So view calculation. I'll just scroll past this to the detailed breakdown. And here it is in a nutshell. So we've got the £16,416 of trading profit minus our personal allowance means that tax is due on the £3,846. And then here's the breakdown here that we talked about earlier. And because the tax bill due is below £1,000, we don't have a payment on account. But if I increase our kind of pseudo profit figure by a single pound to take it up to £16,417 then you'll see in the calculation there's tax due of £1,00022. That's over the £1,000 threshold. So, if we scroll down, we can see the joyous payments on account have kicked in at a rate of £50011 on top of your normal tax bill, plus another £50011 due by the 31st of July. But the total amount of tax we would be paying straight away instead of it being £1,000 odd is now £1,500. 33. So, at £16,417 of trading profits, payments on account are going to kick in. And remember, if you're self-employed, you can't just pay yourself a higher salary to reduce your profits because your trading profits are your salary. So, I mentioned earlier that with payments on account, it could put you in a position where you're paying tax on work you haven't even done yet. And I want to explain how that's possible. There's a lot of seasonal businesses out there where you might have a tailloaded financial year where you make most of your money from the back end of the tax year. As an extreme example, just to demonstrate the point, let's say that you make most of your profit in February and March and the rest of the year you're just kind of keeping things ticking over or perhaps you've got another job to keep you going or something like that. So, let's say in this kind of seasonal example that it's resulting in you having a tax bill of £10,000, but that's all from work you've done in February and March. The rest of the year you've just been kind of breaking even. Well, that means that your £10,000 tax bill is going to be due the following 31st of January, plus a payment on account of another £5,000, so 50%. and you're going to have to pay that before your following February and March when you normally make all of your money. So, you can kind of see that you can easily end up in a situation where you haven't necessarily made the money yet, but you're having to pay the payment on account and that can really scupper a lot of businesses, especially, as I say, seasonal businesses or anyone who has made most of the money over the kind of winter period. Now, don't panic too much if you've had maybe kind of a one-off successful year or a one-off dividend payment and you're being asked to pay a payment on account that you know isn't going to be due. You can obliterate the payment on account straight away. And I'm going to show you how to do that now. Again, over on the computer. So, how do you get rid of this annoying payment on account if you know in the next financial year that a payment on account shouldn't be due? Well, all you need to do is go through your tax return and you should find on the very next page, you get to the bit that says, "Are you claiming to reduce your 2025 26 payment on account? " I'm going to say yes. And then it will ask you what you think it should be. And all I can say is be accurate because if you're wrong and you underestimate it, they will charge you interest on the difference. But for argument sake, you might have completely shut the business down. So, I'm just going to say zero here and I'm going to

### [10:00](https://www.youtube.com/watch?v=Z-ZEmYk4piE&t=600s) Segment 3 (10:00 - 14:00)

say uh business ceased trading. Save and continue. And then you would submit your tax return as usual. Now, if you are doing that, I would suggest you pull your finger out and do it well before the tax deadline because it may take HMRC, I don't know, couple of weeks, couple of months, I don't know, it depends how busy they are, but it may take them a while before your tax account shows the correct amount of tax due. And you don't want all of this happening exactly on the payment deadline. You want to give them plenty time to kind of sort things out because I think it does get manually checked if you claim to reduce your payment on account. But as I say, even if you're a limited company, you're not safe because you're going to get hit by this for dividends that you might be paying yourself as a company director. Let me demonstrate that to you once again over on the computer. So, here we go for dividends. And I've kept this really simple. I've basically in a very unlikely situation, I've said that your only income is from dividends. You've had no trading income. You've had no employment income, no bank interest, nothing. The only thing you've had is dividends. This is a very unlikely situation, but it's just purely to demonstrate the point that dividends do produce a payment on account. So, here we are in the dividend section here. I'm going to say that we've had 20 grands worth of dividends just to try this out. And here's our calculation here. So, you can see we've had basically uh £7,430 on which tax is due. But then due to the dividend tax rate and the dividend allowance and whatnot, that means that the actual amount of tax due on that is going to be £66 and 37, which means that no payment on account should be due, which as you can see, none has been calculated here, which is correct. But if I just go back to the fill in your return section and I change our dividend amount. So this time, for argument sake, I'm going to make £40,000 worth of dividends. And then we'll jump straight forward to view our calculation. And once again, there's the 40 grand there minus our 12,570 personal allowance means that the amount of income getting assessed for tax is 27,430. Knock off our very generous £500 dividend allowance means that we're paying 8. 75% on 26,930. And bear in mind that figure is going to be going up to 10. 75% in the not too distant future. So that means total tax due of £2356 and. 37 which is well above the payment on account threshold. So it means a payment on account is kicking in which is 50% extra on top of that due immediately. Thank you very much. And the remaining 50% due in 6 months time. So instead of paying £2,356. 37, you're going to be paying £3,53455 immediately and a further £1,178. 19 by the 31st of July. But as per usual, perhaps you received no dividends or you know you're not going to receive any dividends in the next tax year. Well, once again, you can apply to reduce that. Save and continue. And on the very next page, are you claiming to reduce your 2526 payments on account? Yes. What would you like to reduce it to? Zero, please. And as I said before, just make sure that is accurate because if you get it wrong, they will just automatically charge you interest. They'll not even tell you about it. You'll just suddenly find out that there's extra money due to HMRC sitting on your account. And if you don't pay that interest, they'll probably start charging interest on the interest as well. But as I say, for argument sake, in this situation, no dividends will be paid in the 25 26 tax year. That would probably do the job to justify having it at zero. So there you go, folks. I hope that all makes sense. Any questions, comments, or anything like that, do post them down below. I do have a new Discord server as well. I'll include a link to the Discord server. It's predominantly for my Gossfit Handyman channel, but there is a small business section on there. So, if you do have any small business questions and you want to discuss them as part of a community, do head over there. As I say, link in the description. It's really great if we can all help each other out on this channel because it's all about the community. Folks, we'll leave it there for now. Good luck on your small business journey. All the best for 2026 and we shall see you next time, Tatty. Bye.

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*Источник: https://ekstraktznaniy.ru/video/52486*