What are payments on account?

These are part payments for the next year. As when it is due (31st Jan) it is ten months into the next tax year, HMRC ask you to pay half of your expected bill for the following year (ie 6 months tax, but paying it 10 months into the year).

You do not know exactly what you will need to pay for that year yet, as clearly the year has not finished, so they calculate half of your bill for the previous year and ask you to pay this as your first payment on account. They then ask you for a second payment on account by 31st July (4 months after you have finished your year).

When you finally do know the liability for the following year, then you set off the payments on account against this liability and make any balancing payment the following 31st Jan.

If, however, you have paid too much, once HMRC knows what you should have paid (by receiving your tax return), they then re-pay this to you, or if it is close to the next payment date they will hold it and set it off against the amount becoming due.

These payments on account can be reduced if you believe the next year's bill will not be as much (using form SA303 or we can reduce this for you). However, if it turns out later that your bill was higher than you reduced it to, you will be charged interest from the date they asked for the payments on account.

If you would like to know more, then please do get in touch directly and we will try to help.