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MoneyWeek- Are payments on account fair?

Journalist: Marc Shoffman, Freelance

ended 18. July 2024

I am writing a piece for MoneyWeek this morning ahead of the payments on account deadline for the self-employed.

I am keen to get views from small businesses/tax experts/financial advisers on if payments on account is a fair way for the self employed to pay tax.

Is it fair to get the self-employed to pay half of their potential tax bill upfront even if they don't known how much they will really earn?

Do you find the deadline creeps up on you? Is this a common gripe from self-employed clients?  

What is the best way to prepare for the payments on account deadline? What happens if you can't pay?

3 responses from the Newspage community

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Payments on account are just another way HMRC punishes people for being self-employed. On no other income source do you pay the tax in advance of earning the income, and you don't get paid interest on the pre-payment either. In the first year of self-employment, you have to save twice the normal amount of tax to not be caught out by this. It shows a complete lack of trust from HMRC in the self-employed. Let them declare their income,and then pay their tax bill with a deadline for payment. It is up to the individual to save their tax and plan for the bill, not for HMRC to force pre-payment. It is not a fair taxation policy and should be scrapped.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Payment on account being fair or not will vary from business to business. For smaller businesses that have an unpredictable cashflow, it will come as fairly hard hitting having to often pay half the tax bill up front. For other, mid cap businesses, it will be less of a problem because they will know the cyclical nature of their businesses. For landlords, the proposed changes to MTD (that have been temporarily shelved) will make it harder to keep track, draining the market of good, hard working landlords that offer housing as a service.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
The pre-payment of tax can make life exceedingly difficult for people, especially as income for many is based on the work they have invoiced for, even if they've not yet been paid for it yet; so they are being asked to pay tax on money they have billed but not yet been paid on yet this year, as well as pre-paying tax on income for work they haven't even done yet. It can catch people out, especially if you have a sharp increase in income in one year. We work with a lot of barristers, and it can be a real issue for them, as they are being asked to pay taxes and then pre-pay tax on earnings they have billed for this year but may not see arriving in their bank accounts for years to come.