What are ‘payments on account’ for sole trader income tax?
Last Updated on 13 November 2023
I’m often asked about the idea that sole traders have to pay tax ‘in advance’.
That’s not quite true, but the ‘payment on account’ system means you might have to pay tax in advance of knowing precisely what the final bill for the year will be.
The key is to squirrel away a percentage of any client payments you receive so that you can cover a tax bill regardless when it arrives.
The amount you squirrel away will be dictated by the amount of income tax you’re likely to have to pay. Here’s a rough guide:
I was prompted to write this by a rather good explanation by Which? of how ‘payments on account’ work for sole traders. You can read it here:
See also this article on simplybusiness.co.uk:
Posted on 22 July 2022