Thousands could be left reeling this month after discovering their Self Assessment tax bills are far higher than expected – with many wrongly fearing they have made a costly mistake.
For self-employed workers, freelancers and small business owners, the shock often comes when they log into their HMRC account and see a total that appears to have jumped sharply compared with last year.
But experts say in many cases nothing has gone wrong at all. Instead, the culprit is the way Self Assessment payments are scheduled – with some people being asked to pay not just what they owe for the current tax year, but an advance instalment towards the next one as well.
This system, known as payments on account, can mean January’s bill includes more than one tax charge landing at the same time, making the total look alarmingly high.
Lee Murphy, Managing Director of The Accountancy Partnership, said confusion over how the system works is one of the most common reasons taxpayers panic when they see their bill.
He said: “People often think they’re paying for one year, but January can include more than that — you could be paying what you owe for this tax return, and an upfront payment towards your next bill. That’s why the total can look higher than expected.”
Another common reason for a larger bill is a rise in income over the past year – something many people forget until they see the final calculation.
“If you’ve had a stronger year than last year, your tax will naturally be higher and it can also affect what you’re asked to pay going forward,” Mr Murphy said.
Even relatively small changes can have an outsized impact on the final figure, particularly when allowances do not apply in the way people expect.
“Small changes can have a bigger impact than people realise. It’s worth double-checking your personal allowance position and whether anything has reduced it.”
Rushing to meet the January deadline can also prove costly. Taxpayers who submit returns in a hurry may fail to include legitimate expenses or reliefs, artificially inflating the amount they owe.
“This is really common when people are rushing. If your records weren’t complete, you may have missed legitimate expenses and that can inflate the bill.”
Forgotten income streams are another trap. Interest, dividends or side work can easily be overlooked – but must still be declared.
“Side work, interest, dividends – it’s easy to forget smaller income streams until it’s time to add them to your tax return. Missing them can throw off the total and lead to surprises.”
Taxpayers are also urged to check that income details reported to HMRC by employers or contractors are accurate, particularly for those paying CIS tax, and match both payslips and bank statements.
Mr Murphy said taking time to understand the bill before paying could make a significant difference.
“The best thing you can do before you pay is slow down for ten minutes and understand what the payment actually includes. Once you know what you’re paying for, you can plan instead of panicking.”
With the Self Assessment deadline looming, experts warn that failing to understand what January’s bill covers could leave households struggling unnecessarily – especially as many face tight cashflow at the start of the year.
