HMRC Payments on Account explained

Payments on account are advance payments that taxpayers in the UK Self Assessment system make towards their expected income tax and National Insurance contributions for the current tax year, before their final liability is calculated.

How Payments on Account Work

Payments on account are calculated as half of the previous year’s tax and National Insurance liability, after deducting:

• Capital Gains Tax
• Tax already deducted at source
• Underpayments transferred to PAYE
• Student loan and postgraduate loan repayments
• Class 2 National Insurance contributions

When Payments on Account are Due

There are two payments on account each year:

• First payment: 31 January (before the end of the tax year)
• Second payment: 31 July (after the end of the tax year)

When Payments on Account are Not Required

You don’t need to make payments on account if:

• Your previous year’s total tax and National Insurance liability was less than £1,000
• More than 80% of your previous year’s liability was deducted at source (like through PAYE)
• You’re covered by certain other specific circumstances

Making Adjustments

If you believe your payments on account are too high or too low based on your expected income for the current year, you can make a claim to adjust them using form SA303. You must provide a valid reason, such as:

• Your income has decreased
• Your allowances or reliefs have increased
• More tax will be deducted at source than in the previous year

Important Points

• Any odd penny is added to the second payment
• The payments are automatically calculated when your tax return for the previous year is processed
• If your actual liability turns out to be different from your payments on account, any difference is settled through the “balancing payment” when you file your return
• Interest may be charged if you reduce payments on account too much and end up owing money

This system helps spread your tax payments across the year rather than paying everything in one lump sum after filing your return.