What are income tax payments on account?

Well done on getting your self-assessment tax return completed ahead of the deadline. Your tax return will include a tax calculation and how much tax you have to pay will determine if you need to make income tax payments on account.

Payments on Account (POAs) are where you have to pay some of your future income tax liability in advance. You may be required to make Payments on Account when: 

• your income tax liability is greater than £1,000, and 
• less than 80% of your tax liability is collected by Pay As You Earn (PAYE). 

Instead of just paying your income tax liability by 31st January, you will be required to make two tax payments each year, these are known as payments on account. 

For example, Stuart has just has his tax return submitted, his tax return for 2023/24 results in a tax bill of £5,000 due by 31st January 2025. Stuart is a landlord and most of his income is from his property rental. Because he meets the two factors for making payments on account, he also needs to make payments in advance for his 2024/25 tax return. The amounts Stuart has to pay in advance of his 2024/25 tax liability is based on his 2023/24 tax liability (excluding capital gains). Half of this is paid by 31st January, and the other half by 31st July. 

Following the submission of Stuart's 2023/24 tax return he will need to make the following payments:

Payment date	Amount
31st January 2025 - 2023/24 tax due	£5,000
31st January 2025 - half of estimated 2024/25 tax	£2,500
31st July 2025 - second half of estimated 2024/25 tax	£2,500

Once Stuart's 2024/25 tax return is prepared, in January 2026 he will need to pay any balance of tax above £5,000, or he'll be refunded if he overpaid. Stuart will receive repayment interest from HMRC along with any refund. Stuart can opt for his refund to be set against his payment on account for 2025/26 if he is still required to make payments on account.

What if you're not expecting your tax bill to be as much?

It is possible to ask HM Revenue & Customs (HMRC) to reduce the amounts payable, as long as you have a valid reason. For example, you may be aware that your income is going to reduce significantly due to a change in your circumstances. HMRC Form SA303 can be completed, or you or your accountant can apply to reduce your payments on account online. 

If you do reduce your payments on account, and your tax liability ends up being higher than your reduced amount HMRC will charge interest on the underpayment. If you are expecting an increase in your tax liability compared to the previous year, there is no need to increase your payments on account. 

Benefit of filing your tax return early

If your tax return has been completed by 31st July you will be aware of your actual tax liability. You can therefore pay the correct amount at this date, rather than the estimate.  There is therefore an incentive to get your tax return prepared and submitted earlier! 

New to self-assessment?

If you are new to self-employment, you won't have paid any tax towards your self-employment yet. If you are expecting a tax liability, working with an accountant may be beneficial so you can plan for your tax effectively and are prepared for the payments. It can be a shock when you haven’t made payments on account before to then have to pay another amount of tax in advance of the next year. 

How can TaxAssist Accountants help?

If you’d like to use a pro-active accountant who can help you plan for your tax liabilities, contact TaxAssist Accountants on 01423 871 870or use our online contact form.

Date published 8 Nov 2023 | Last updated 29 Oct 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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