A balancing payment refers to the final payment made by taxpayers to settle their tax liability for a given tax year. This payment is typically required when the taxpayer needs to pay more tax through other means, such as Pay As You Earn (PAYE) or payments on account. The balancing payment essentially “balances” the taxpayer’s account with HM Revenue and Customs (HMRC) to ensure they have paid the correct amount of tax.

Deadline for balancing payments:

For self-employed individuals or those required to submit a Self Assessment tax return, the deadline for making a balancing payment is January 31st, following the end of the tax year. For example, for the tax year ending on April 5th, 2023, the balancing payment would be due by January 31st, 2024.

Balancing payment vs payment on account:

Balancing payments and payments on account are related but different. A payment on account is an advance payment towards a taxpayer’s future tax liability, usually required for self-employed individuals or those with significant income outside of PAYE. Payments on account are calculated based on the previous year’s tax liability and are divided into two equal installments. The first payment is due by January 31st (the same deadline as the balancing payment for the previous tax year), and the second payment is due by July 31st.

Maintaining cash flow and avoiding missed payment deadlines:

Taxpayers can follow these guidelines to help maintain their cash flow and avoid missing payment deadlines:

1. Plan: Be aware of upcoming tax deadlines and set reminders to avoid missing them. Budget for your tax payments in advance and set aside funds throughout the year to cover your tax liabilities.
2. Submit tax returns early: You can determine your tax liability well before the payment deadlines by submitting your Self Assessment tax return early. This gives you more time to plan and manage your cash flow accordingly.
3. Use HMRC’s online services: Register and use HMRC’s online services to manage your tax affairs more efficiently, including submitting tax returns, checking your tax account, and making payments.
4. Regularly review your financial position: Keep accurate and up-to-date financial records to help you understand your tax liabilities and monitor your cash flow. This will help you make informed decisions about managing your tax payments.
5. Consider using a budget payment plan: If you find it challenging to make a lump sum payment, you can set up a budget payment plan with HMRC. This allows you to make regular smaller payments throughout the year, which can help you manage your cash flow more effectively.
6. Seek professional advice: If you need clarification on your tax liabilities or require assistance managing your cash flow, consider seeking the advice of a professional accountant or tax advisor. They can provide tailored advice and support to help you meet your tax obligations and maintain a healthy cash flow.