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Tax Payments And Reducing Your Payments On Account

‘Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed). You have to make 2 payments on account every year unless:

  • your last Self Assessment tax bill was less than £1,000, or
  • you’ve already paid more than 80% of all the tax you owe, for example through PAYE.

Each payment is half your previous year’s tax bill and payments are usually due on 31 January and 31 July. If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by 31 January in the following year.

If you have made a payment on account of your 2021/22 tax liability in January you may now be in a position to review your potential tax liability for the year. If your income for 2021/22 is going to be lower than the previous year then you can consider reducing your payments on account.  You can do this at any time but we suggest getting your tax return prepared early, ideally between 6 April and 31 July, so that you can confirm your liability and reduce your payments on account before the next payment to HMRC in July.  You can do this online or by post, or your accountant can do it on your behalf through the HMRC Agent Portal.

If you reduce your payments on account too much, then you may be charged interest and penalties for underpaying.  HMRC will refund you if your payments on account exceed your total tax bill.

For more information on reducing your payments on account, get in touch with our Private Client Taxperts via [email protected] or call your local office.

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