The next tax deadline for freelancers and sole traders is in 10 days

Freelancers and sole traders, take note: a major tax deadline is just around the corner.

July 31 marks the second ‘payment on account’ deadline for the year, and it applies to self-employed workers with tax bills over £1,000. 

This isn’t a date to miss since HMRC is now charging a steep 8.25% interest on late payments. And beyond the financial repercussions, missing this deadline may flag your business for closer scrutiny from HMRC.

What is a tax Payment on Account — and does it apply to you?

Payments on account are advance payments you make twice a year towards your Self Assessment tax bill. They apply to those who owe more than £1,000 in tax, and are designed to prevent you from paying all of the tax that you owe in one large, lump sum. 

Instead, HMRC spreads out your business tax payments into two installments due throughout the year, one on January 31 and the other on July 31. There are two exceptions to settling payments on your account:

• If the amount of tax you owed last year was less than £1,000.
• Or, last year, more than 80% of the tax you owed was paid separately to your Self-Assessment tax return, such as through your tax code or paying interest on savings to your bank. 

The amount you should pay is calculated according to your estimated earnings, usually based on the previous year. Each payment you make will normally account for half of the tax you owed last year. So, if your tax bill last year was £3,000, you’d pay two lots of £1,500.

If you earn more this year, you’ll need to make an additional ‘balancing payment’, which will be due on January 31 next year. If you earn less, you may be able to claim a tax refund. 

If you already made payments on account last year, you’ll now need to pay half of this year’s estimated tax bill, plus any remaining balancing payment from the previous year.

What happens if you miss the deadline?

Sole traders must make sure they pay their bill before midnight on July 31, as the consequences of missing this deadline can quickly escalate, warns Qdos CEO Seb Maley.

“Missing the Payment on Account deadline can easily snowball into bigger problems,” he explains. “Firstly, HMRC will charge interest on outstanding tax payments, which, at 8.25% can rack up quickly. 

“You also run the risk of being investigated by HMRC – late payments are one of the many red flags that the tax office looks out for.”

Payments on Account apply at a relatively low threshold, so millions of self-employed workers are affected, including those running side hustles or newly launched businesses who may not be familiar with the process.

If you miss the deadline, HMRC’s 8.25% late payment interest rate will apply, and with its tools and access to data becoming increasingly sophisticated, even a single missed payment could draw unwanted attention to your business.

How to prepare — and protect your finances

To settle a Payments on Account bill, you’ll need to log into your HMRC account online or via the app to check your tax bill and set up a payment in advance. 

You can pay your bill via online banking, Faster Payments, CHAPS, debit card, or at your bank or building society. All of these methods result in same-day payment.

For peace of mind, you can also set up a direct debit to automate your payments. Be mindful that you should allow three working days between your payment and the deadline. You can use a solid self-employed accounting software to do this easily.

If you’ve not used direct debit for HMRC before, allow a five day window to account for delays. Those paying via cheques in the post or BACS should also leave adequate time before the deadline. 

In the case that your income has dipped and you can’t afford your Payment on Account, you can apply for a reduction, but this must be done before the deadline of July 31. 

Staying on top of tax can feel overwhelming, especially for new side hustlers or first-time sole traders. But solid record-keeping and a bit of forward planning can help you avoid last-minute panic and expensive mistakes. 

Meeting tax deadlines is one of the simplest ways to stay in control of your business finances. Read our guide on how to pay your Self Assessment tax return for more.