Q: How is the Payment on account calculated?
A: The Payment on Account for a Tax Year is calculated on the Income Tax paid plus the Class 4 National Insurance for the Previous Tax Year.
Example: For the Tax Year 2014/15 Sheila a sole trader paid tax as follows:
Total Income Tax liability £20,400
Tax deducted at source on savings income £8,400
Class 4 NIC £3,800
The Payment on Account for 2015/16 is based on the income tax paid and class 4 NIC for the previous Tax Year (2014/15)
Total Income Tax liability 2014/15 £20,400
Less Tax deducted at source on savings income £8,400
Income Tax Payable under Self Assesment £12,000 plus Class 4 NIC £3,800
The Payment on account is £15,800
On 31 January 2016 1/2 the Payment on Account is payable £7,900
On 31 July 2016 1/2 the Payment on Account is Payable £7,900