What Are Payments on Account & How Do I Complete Them?

So, you've submitted your tax return. Congratulations on checking that off the to-do list! But when and how should you submit your payment to the taxman? Enter: payments on account. It can feel complicated, can't it? We've pulled together this post to help you understand how the process works to calm that confusion.

What are payments on account?

Payments on account are tax payments made by Self Assessment taxpayers as advanced payments toward your tax bill. The bill is split into two instalments to spread the cost of the upcoming year's tax and is based on the previous year's tax bill.

Essentially, you are paying an advance tax payment in part to prevent you from being indebted to HMRC.

The two payments are usually due at midnight on 31st January and 31st July.

How are they calculated?

The amount you pay is based on half of your previous year's tax bill.

For example.

Let's say you owe £2,000 in tax for Self Assessment for the 2021/2022 tax year. Last year you made 2 payments on account of £500 each (£1,000 total).

For the first payment due on 31 January 2022, you will have to make a tax payment of:

Your 'balancing payment' for 2021/2022 tax year of £1,000 (£2,000 - £1,000)
Your first payment on account of £1,000 (half of the £2,000 total for the 2021/2022 tax bill) towards the 2022/2023 tax year

By July 31 2022 you will make a second payment of £1,000.

If your tax bill for 2022/2023 is more than £2,000 you will also need to make a 'balancing payment' by 31st January 2023.

What are the exemptions?

You will pay the two payments on account unless either of the following applies:

Your last Self Assessment tax bill was less than £1,000.
You've already paid more than 80% of all the tax you owe. This could be because of your tax code.

Payments on account do not include anything you owe for capital gains or student loans. These will be paid in your 'balancing payment'.

In some cases, you can reduce your payments on account. For example, if you know your tax bill is going to be lower than last year.

Is it possible to overpay or underpay?

If your tax bill is higher or lower than you expected then you might end up paying the wrong amount. If the case is that you have overpaid, HMRC will send you a refund. If you have underpaid, you'll be charged interest.

How do I pay?

The process of paying your two payments is simple. Simply sign into your online account here. Select the option to view your latest Self Assessment tax return and then select 'View Statements'. You'll be presented with the payments on account that you've already made and the payments that you need to make toward your next tax bill.

If you would like to chat in more detail about your unique circumstances, please get in touch today to book your FREE initial consultation. Give Catherine a call on 01423 431889 or email catherine@bctaccountants.co.uk.

Please note: all stats are accurate for the 2021/22 tax year.