When Do I Need To Pay My Tax Bill?

pay tax bill

As a business owner, it’s essential to keep on top of your tax obligations to avoid any unnecessary penalties or fines. However, with multiple tax deadlines to keep track of, it can be confusing to know when you need to pay your tax bill. Read on as we explore the deadlines for paying taxes if you’re self-employed or a limited company.

It can be tough to find someone who really understands your business. Joanna Bookkeeping is a professional practice based in Oxford, UK, offering bespoke accounting and bookkeeping solutions that are tailored to meet your business’s needs. Whether you’re just starting out or have been running your own company for years, Joanna Bookkeeping can help with the A to Zs of bookkeeping and accounting, including when and how to pay your tax bill.

When to pay your tax bill if you're self-employed

If you’re self-employed, you need to pay income tax and National Insurance Contributions on your earnings. There are two deadlines for paying taxes when you’re self-employed:

➡️ Payments on account – Payments on account are advance payments towards your tax bill for the current tax year. They are usually made twice a year and are based on your previous year’s tax bill. One payment on account is due by 31 January and the second one by 31 July.

For example, if your tax bill for the tax year 2021/22 was £10,000, you would need to make two payments on account (£5,000 each) towards your tax bill for 2022/2023. These payments are an estimate of what you owe in tax for the current year. Your actual bill for the current year can be different, either lower or higher.

➡️ Balancing payment – A balancing payment is a difference between your actual tax bill for the tax year and the payments on an account you’ve already made. This payment is due by 31 January after the end of the tax year.

Using the example above, if your actual tax bill for the tax year 2022/23 is £12,000, you would need to pay a balancing payment of £2,000 (£12,000 – £10,000) by 31 January 2024. Alternatively, if your actual tax bill for the tax year 2022/23 is £8,000, you will receive a tax refund of £2,000 (£10,000 – £8,000).

It’s important to remember that if you don’t pay your tax bill by the deadline, you may face a penalty from HM Revenue and Customs (HMRC), and interest may also accrue on the outstanding amount.

When to pay your tax bill if you're a limited company

If you’re running a limited company, you need to pay corporation tax on your profits. The deadline for payment is nine months and one day after the end of your company’s accounting period. The accounting period is usually the same as the company’s financial year, which is normally twelve months, but it can be different in some cases.

For example, if your company’s accounting period ends on 31st December 2021, the deadline for paying your tax bill would be 1st October 2022.

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Should you pay your tax early?

Whether you should pay your tax bill early or wait until closer to the deadline will depend on your cash flow situation. Paying tax early has the benefit of removing the worry of having to pay it later and not being able to spend the cash elsewhere. However, paying it too early may affect your cash flow, so it’s crucial to analyse your finances carefully before making an early payment.

It’s also worth noting that HMRC charges interest on late payments, so it’s best not to leave your tax payment until the last minute. You never know what may happen and you may not be able to pay it on the last day.

Additionally, in terms of corporation tax, paying your tax bill early can be beneficial as HMRC pays interest on early payments, but it’s important to remember that this interest payment is later taxable.  

Understanding when you need to pay your tax bill is imperative for any small, medium or big business owner, whether you’re operating as a sole trader or a limited company.

If you’re unsure about any aspect of your tax obligations, and to ensure that you’re not affecting your finances negatively, it’s always best practice to seek advice from a professional accountant, ensuring you’re making sound financial decisions for your business.

If you have any questions or are looking for input and advice regarding your business’s finances, don’t hesitate to get in touch with our Oxford-based team of bookkeeping and accountancy experts.

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