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The fairness of payments on account in the UK’s HMRC self-assessment system is a nuanced issue with valid arguments on multiple sides.

Arguments for fairness:

The system serves legitimate purposes – it helps HMRC manage cash flow and reduces the administrative burden of collecting large lump sums annually. It also mirrors how employed people pay tax through PAYE throughout the year, creating more consistency across different types of taxpayers. For those with stable, predictable incomes, it spreads the tax burden evenly rather than creating a potentially difficult annual payment.

Arguments against fairness:

The system can create genuine hardship, particularly for those with irregular or declining incomes. Someone whose income drops significantly may still be required to make payments based on their previous year’s higher earnings, creating cash flow problems. This is especially challenging for freelancers, contractors, or small business owners whose income can fluctuate substantially.

The system also assumes income stability that doesn’t reflect modern working patterns. The six-month gap between the July and January payments can be problematic, and the relatively high threshold for reducing payments on account (requiring a significant drop in income) means many people get caught in difficult situations.

The practical reality:

While HMRC does allow reductions to payments on account when income is expected to fall, the process isn’t always straightforward, and many taxpayers either don’t know about this option or find it cumbersome to navigate.

The system works reasonably well for those with stable, growing incomes but can feel punitive for those experiencing income volatility – which describes an increasing portion of the modern workforce. Whether that makes it “unfair” depends partly on whether you view the system’s efficiency benefits as justifying the individual hardships it can create.Retry

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Research

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You can challenge a late payment penalty through the appeals process. Based on the HMRC guidance, here are the key points about challenging late payment penalties:

Grounds for Appeal

You can appeal a late payment penalty on two main grounds:

1. Fact – For example, where there was already an agreed time to pay (TTP) arrangement in place for that year
2. Reasonable excuse – Where you were prevented by circumstances beyond your control from making the payment on time

What Constitutes Reasonable Excuse

A reasonable excuse is normally something that stopped the customer from meeting a tax obligation on time that they took reasonable care to meet. It might be due to circumstances outside their control or a combination of events.

Examples that might be accepted as reasonable excuse include:

• Serious illness or hospitalization
• Death of a close family member
• Fire, flood, or theft that prevented payment
• Postal delays (with evidence)
• Issues with HMRC online services

What Won’t Usually Be Accepted

• Shortage of funds (unless due to exceptional circumstances outside your control)
• Pressure of work
• Not knowing how much to pay
• Failure by your tax agent
• Lack of reminders from HMRC

Time Limits and Process

An appeal should be in writing and made within 30 days of the issue of the Notice of Liability. However, in practice, to allow for the print and issue of Notices of Liability, 37 days should be allowed from the date the charge is recorded on the taxpayer record.

Important Timing Consideration

A late payment penalty is not imposed until the balancing or final payment for the year is more than 30 days overdue. Therefore, even if there were problems on or around the due date, the customer should have been able to make arrangements to pay before the trigger date for the first late payment penalty.

If you believe you have grounds for appeal, you should submit your appeal in writing to HMRC as soon as possible, explaining your circumstances and providing any supporting evidence.

Payments on account can seem unfair in certain situations, and there are legitimate concerns about how the system works. Here are the main fairness issues and the system’s justifications:

Potential Unfairness

Based on Past Performance

• Calculated using the previous year’s liability, which may not reflect current circumstances
• Doesn’t automatically adjust for business downturns, job loss, or reduced income
• Can create cash flow problems when income has genuinely fallen

Interest Penalties

• If you reduce payments and get it wrong, you’re charged interest from the original due dates
• Creates a “damned if you do, damned if you don’t” situation – pay too much and lose use of your money, pay too little and face interest charges

Cash Flow Impact

• Requires payment before you know your actual liability
• Particularly challenging for businesses with seasonal or volatile income
• Can force borrowing to meet advance payments

The System’s Justifications

Revenue Collection

• Ensures steady government cash flow throughout the year
• Prevents large tax bills becoming unmanageable debt
• Reduces the temptation to spend money that should go to taxes

Spreading the Burden

• Splits tax payments across the year rather than one large sum
• Mirrors how PAYE works for employees (tax deducted throughout the year)
• Makes tax more manageable for most taxpayers

Adjustment Mechanisms

• You can reduce payments if circumstances genuinely change
• Automatic review when you file your return
• Overpayments are refunded with interest

Built-in Protections

Thresholds

• No payments required if previous year’s liability was under £1,000
• No payments required if over 80% was deducted at source

Flexibility

• Can make multiple claims to adjust during the year
• Can revise earlier claims if circumstances change further

The system arguably balances revenue collection needs with taxpayer flexibility, but it does place the burden on taxpayers to actively manage their payments and bear the risk of getting estimates wrong. Whether this is “fair” often depends on your specific circumstances and ability to navigate the adjustment process effectively.

You can reduce your payments on account by making a claim to HMRC if you believe your liability for the current tax year will be lower than the amount calculated from your previous year’s tax bill.

How to Make a Claim

Form SA303: Use this form to request a reduction. You can:

• Complete it online through your Government Gateway account (automatic processing in most cases)
• Download and complete a paper version from Gov.uk
• Submit it by post or fax

Valid Reasons for Reduction

You must provide a valid reason explaining why you believe reduced payments are justified, such as:

• Income has decreased – Your business profits are down or your business has ceased
• Other income has reduced – Investment income, rental income, etc. has fallen
• Increased allowances or reliefs – You’re entitled to higher tax allowances or reliefs
• More tax deducted at source – More of your income will have tax deducted through PAYE than in the previous year
• Expecting to claim reliefs – Such as EIS (Enterprise Investment Scheme) or VCT (Venture Capital Trust) relief

Important Requirements

Your claim must:

• Be made in writing (including online or by fax)
• Include a clear reason for the reduction
• Be submitted before 31 January following the end of the tax year
• State what the adjusted payments should be

What Happens Next

• Automatic processing: Most online claims are processed automatically
• Acknowledgment: HMRC will send letter SA614 warning about interest charges if you reduce payments too much
• Equal split: Any reduction is split equally between both payments on account
• Interest risk: If you reduce too much and underpay, you’ll be charged interest from the original due dates

Important Warnings

• Be realistic: Only reduce if you genuinely expect lower liability
• Interest charges: You’ll pay interest on any shortfall from the original payment dates
• Penalties: Fraudulent or negligent claims can result in penalties
• Consider all income: You must consider your total expected liability from all sources, not just one income stream

The key is to make a reasonable estimate based on genuine changes to your circumstances – don’t just reduce because you can’t afford to pay the full amount, as this isn’t a valid reason under the rules.

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.