Accounting Blog


If you’re a UK taxpayer who makes annual self-assessment income tax returns then you need to be aware of what HMRC calls payments on account and how they work.

As the name suggests, payments on account are payments towards your next income tax bill (and your class 4 National Insurance bill if you’re self-employed). You must make two payments on account every year – one by midnight on 31st January and the other by midnight on 31st July – unless your last tax bill was under £1,000 or you’ve already paid at least 80% of the all the tax owed by you.

Each of the two payments on account is half of your previous year’s tax bill. So if your previous year’s tax bill was £3,000 then you’ll have to pay £1,500 on 31st January and a further £1,500 on 31st July. That sum is then applied against your current year’s tax bill.

If the payments made by you aren’t enough to cover your outstanding tax liability then you’ll be required to pay a balancing payment to HMRC. So if you’ve paid £3,000 in tax but your tax bill actually works out at £3,600, you’ll be due to pay HMRC another £600.

You won’t, however, have to pay the balancing payment right away. Instead, you have until 31st January of the following year in which to make payment of it. In practical terms, you’d simply add it to the payment on account due to be paid 31st January.

If, on the other hand, the two balancing payments made by you exceed the amount owed to HMRC then you’ll either receive a refund or the overpayment will be deducted from your next tax bill.

If you know that you’ll pay more on account than the tax due by you, you can apply to HMRC to reduce your payments on account. We would suggest, however, that you take professional advice before taking this step, as reducing your payments on account too much and thereby underpaying your tax could result in HMRC charging you interest and penalties.



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