Payment on Account: what is it and how to calculate it?

[shukla7789]

Managing payments to the State means being aware of all tax obligations, understanding how they are calculated and when they must be met. Payment on account is one of these obligations to which companies and self-employed workers are subject.

Despite this, there are situations in which you may be exempt from this payment, as we will explain later. But let's take it one step at a time. Before knowing who does and does not have to pay, it is essential to understand what payment on account is.

What is payment on account and who does it apply to?
As the name suggests, payment on account is nothing more than an advance payment of IRC, in the case of legal entities, and IRS, in the case of individuals.

Payment on account of IRC
Applies to legal entities that carry out, as their hong kong whatsapp number database activity, commercial, industrial or agricultural activities or non-resident entities with an establishment in Portugal, which calculated IRC and made a profit in the previous year.
Payment on account of IRS
All individuals who are holders of category B income (business and professional income) are subject to payment on account of IRS.
Basically, the advance payment works like a withholding tax on income earned. Throughout the year, companies and self-employed individuals pay taxes in advance to the State, which are then adjusted when filing their income tax return. At that time, only the difference between the total tax calculated and the amount paid in advance through advance payments is paid.

What is the purpose of payment on account?
While on the one hand, payment on account contributes to the financing of the State by generating liquidity throughout the financial years, on the other hand, it is a way of alleviating the financial burden on companies and self-employed workers, allowing them to split the payment of a large amount of tax.

How is the IRC payment on account calculated?
The amount of the IRC advance payment is calculated taking into account the turnover and the tax paid for the immediately preceding period.

This is the calculation formula:

Turnover equal to or less than 500 thousand euros
Payment on Account = (IRC paid in the previous year - withholding tax made in the previous year) x 80%

Turnover exceeding 500 thousand euros
Payment on Account = (IRC paid in the previous year - withholding tax made in the previous year) x 95%
How is the IRS payment on account calculated?
In the case of IRS taxpayers, the amount of the advance payment is based on data from the penultimate year, namely the collection deducted from IRS deductions, withholding taxes and net income, in the proportion of 76.5%.

This is the calculation formula:

PPC = [(collection from the penultimate year – deductions) x (positive net income from the penultimate year / total net income from the penultimate year) - total withholdings made in the penultimate year] x 76.5%
In order to make the payment, IRS taxpayers receive communication of the respective amount and the payment document in the month prior to the month in which the payment is due.

What are the payment terms?
In order to simplify compliance with this obligation and reduce the amount of tax to be paid by companies in the following year, the amount determined is divided into three parts, paid in the year to which the taxable profit relates:

the first payment on account by July 31;
the second payment on account by September 30th;
the third payment on account (if any) by December 15th.
If the tax period does not coincide with the calendar year, these payments must be made by the corresponding days of the 7th, 9th and 12th months of the respective tax period.

In the case of self-employed workers , unless they are not required to do so, payments must be made in the months of July, September and December, but by the 20th of each month.

When is there an exemption from payment on account?
Although all companies and self-employed workers are subject to payment on account, in certain situations this obligation is waived.

For IRC taxpayers :

When the tax used as the basis for calculating the payment on account (the IRC calculated for the previous tax period) is less than 200 euros, there is an exemption from all payments on account;

When it is expected that the tax to be paid in the following year, based on the taxable amount of the current fiscal year, has already been reached or exceeded by the accumulation of the first two advance payments, the third payment is waived.
Self-employed workers are exempt from making advance payments if they do not earn category B income or the total amount of the advance payment is less than 50 euros. They are also no longer obliged to make payments when the amounts of withholdings and advance payments already made for the year are equal to or greater than the total amount of tax.

However, if when submitting the IRC or IRS income tax return, it is found that, as a result of the cessation or reduction of advance payments, an amount greater than 20% of what should have been paid remained unpaid, compensatory interest will apply .

Ensure compliance with all tax obligations
Complying with legal and tax obligations is indeed complex. But ensuring faster information flows and compliance with all payments is now simpler.

At Cegid we have a team made up of tax experts and systems specialists who are continually dedicated to monitoring tax developments and the respective implementation of new requirements in our solutions, ensuring you permanent and timely monitoring of tax developments , with complete peace of mind.

Even if legislation changes at a rapid pace, you don’t have to worry about it. Simply keep your Cegid Primavera solution up to date and focus on your business. We ensure ongoing compliance with legislation.