Although the due date for paying ITSA and class 4 NIC for 2023/24 is 31 January 2025, some taxpayers are required to make payments on account. The first payment was due on 31 January 2024 and the second is payable on or before 31 July 2024.  The amounts are calculated according to the person’s liabilities for 2022/23. 

ICAEW is warning taxpayers to prepare for the 31 July 2024 payment deadline. Missing the deadline could prove to be expensive as HMRC’s interest rate for late payments is currently 7.75%.

As the amounts are based on the previous year’s figures, too much tax may be paid if the person’s total ITSA and class 4 NIC liability is lower than their liability for 2022/23 (eg, because their business profits have fallen). In this case, it may be possible to reduce the payment on account due on 31 July 2024 by either submitting the return for 2023/24 or making a claim. 

What are payments on account?

A person is required to make a payment on account for 2023/24 unless:

• their total ITSA and class 4 NIC liability for 2022/23 was less than £1,000; or
• more than 80% of the income tax and NIC they owed for 2022/23 was deducted at source (eg, through pay as you earn). 

Each payment on account is equal to 50% of the person’s total ITSA and class 4 NIC liability for 2022/23. If the final tax liability exceeds the payments on account made, a balancing payment is due by 31 January 2025.

Applying to reduce the 31 July payment on account

Payments on account for 2023/24 are reduced where the person’s total ITSA and class 4 NIC liability for 2023/24 is less than that for 2022/23. The reduction is made when the person submits their ITSA return for 2023/24 to HMRC. In other words, the amount due by 31 July 2024 could be reduced if the person submits their tax return for 2023/24 in advance of that date. 

Where the person does not expect to submit their 2023/24 return by 31 July 2024, and they believe that their total ITSA and class 4 NIC liability for that year will be lower than that for 2022/23, they can apply to HMRC to reduce their payment on account. 

The taxpayer can do this online or by completing the form, printing it and then posting it to HMRC. The taxpayer’s agent can make the claim on the taxpayer’s behalf through their HMRC account. 

Care should be taken to ensure that it is appropriate to make a claim. HMRC may charge a penalty where a taxpayer fraudulently or negligently makes an incorrect statement in a claim to reduce a payment on account. The maximum penalty is the difference between the payment that should have been made and the amount that was paid.

Remember basis period reform

It may be necessary to consider the implications of basis period reform when completing the tax return or estimating the tax liability for 2023/24 for a sole trader or partner. If the person prepares their accounts to a date other than 31 March or 5 April, their tax liability may be higher than expected.

ICAEW’s Tax Faculty has published a TAXguide on basis period reform.

The faculty is also presenting a webinar on the implications for the 2023/24 tax return on 8 July.

Further information

• HMRC guidance SALF303 - Payment of tax: payments on account