What are payments on account? And why do I have to pay them? Can I reduce my payments?

What are payments on account? And why do I have to pay them? Can I reduce my payments?

You will be required to make payments on account if:

  • your Self Assessment tax bill is more than £1,000; and
  • you pay less than 80% of all the tax you owe through PAYE, for example through your tax code or because your bank has already deducted interest on your savings

 Put simply, you are required to make two payments on account towards next year's liability (green and red).

 The first payment on account (green) is due with the balance of your tax liability for this year (purple) which totals the amount due by 31 January (orange) and then the second payment on account is due by 31 July (red).

 


On next year’s tax return, you can include the green and red payments on your tax return if you have paid them to HMRC and this will reduce the balance of tax due.

More information on payments on account can be found on HMRC's website:

https://www.gov.uk/understand-self-assessment-bill/payments-on-account


FOR EXAMPLE

The tax due for 2023/24 is £5,000 to be paid by 31 January 2025.

However, HMRC also assume that you will owe a similar amount of tax for the 2024/25 tax year so ask for 2 x payments on account. Each payment is 50% of the 2023/24 tax year so is £2,500 and are to be paid 31 January 2025 and 31 July 2025. This brings the total payable on 31 January 2025 to £7,500.

If you include payments on account paid of £7,500 on your 2024/25 tax return, you will be overstating the tax paid and therefore GoSimpleTax will show a lower amount due and you will be paying less than required to HMRC and they may send you a statement showing an underpayment of tax. Always check your HMRC portal if you have access to ensure the correct amount of tax is paid.

If you think you will owe less tax in 2023/24 then you can elect to reduce the payments on account to a lower amount, this can be done on the tax return by following the instructions at HOW DO I REDUCE MY PAYMENTS ON ACCOUNT? Please note that if you do this and you reduce the payments on account too much and you then do not pay enough tax then HMRC will charge you interest on any shortfall.

HMRC also have a special time to pay arrangement so that any tax due on 31 January 2025 can be spread over 12 months, you can apply for this 3 days after filing your tax return at https://www.gov.uk/difficulties-paying-hmrc however this is aimed at the self employed so we can't confirm for certain if you would be eligible (please note that they will charge interest if you pursue this route). 


HMRC may send you a reminder to pay your tax in July but they aren't required to, I would advise you make a calendar appointment to make payment closer to the time.

If you are expecting your untaxed income to be less next year, you may wish to reduce your payments on account.

To do this you should press VALIDATE MY TAX RETURN > YES which brings you to the Almost There! Page and scroll down to the following question and answer it YES:


Please note, the amount you enter here is PER PAYMENT and therefore you should estimate your tax liability for next year and then half it before entering the amount.

More information on reducing your payments on account can be found on the link shared earlier.


    • Related Articles

    • Why are my payments on account not showing?

      If you are expecting payments on account but they aren't showing, you might have a question on the Almost There page answered incorrectly. Follow this article to update your account to show the payments on account due: 1. As you can see here, the ...

    • How do I Add My Payments on Account?

      If you're self-employed, please follow the steps below: 1. Click on '+ GROUP' 2. Select 'Payments on Account' from the list of categories and then click 'SAVE' at the bottom 3. Click on '+ ADD' 4. Select 'Payments on Account', fill in the entries and ...

    • How do I make payment? How do I purchase a tax year licence?

      1. Once you have entered all of your sources of income and expenses, click 'PAY NOW' 2. You may be prompted to fill in your personal details in case you didn't do them previously. If so, please fill in these boxes in order to proceed 3. Once you've ...

    • How do I reduce my Payments On Account?

      If you know your tax bill is going to be lower than last year, you can ask HM Revenue and Customs (HMRC) to reduce your payments on account   Click on SAVE & CONTINUE/VALIDATE MY TAX RETURN   Click on YES to proceed On the ALMOST THERE page,  answer ...

    • SA104 : Where can I enter Adjustments to Partnership Profits to reduce the Class 4 National Insurance I need to pay?

      Some adjustments can reduce the amount of Class 4 National Insurance contributions you have to pay. These include: • adjustments for changes in accounting practice • certain losses from earlier years • employment earnings included in your profits   ...