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24th July 2023
Payments on account are made in January and July every year against your tax liability. HMRC will charge interest if the payments on account are made late.
If you pay tax via self assessment and your tax liability is over £1,000, HMRC require you to make payments on account in January and July each year. The payments on account are estimated based on the tax liability for the prior year, and the difference is payable/refundable in the following January.
For example, if your tax liability for the 2020/21 tax year was £20,000, HMRC require you to make payments on account of your 2021/22 tax liability of £10,000 by 31 January 2022 and £10,000 by 31 July 2022. Supposing when you completed your tax return for the 2021/22 tax year it showed a tax liability of £18,000, you would have overpaid £2,000 of tax for 2021/22 which could be offset against the first payment on account for 2022/23.
The payments on account for 2022/23 are based on 50% of the tax liability for 2021/22, i.e. £9,000 each in 31 January 2023 and 31 July 2023. If you subsequently submitted a return showing a tax liability of £22,000, you would need to pay a balancing payment on 31 January 2024 of £4,000 to make up the shortfall. At the same time, the first payment on account for 2023/24 would be due, and so the process continues.
The timing of payments for each tax year can be summarised as follows:
| Date of payment | Amount Due | Tax Year 2021/22 | Tax Year 2022/23 | Tax Year 2023/24 |
|---|---|---|---|---|
| 31 January 2022 | £10,000 | £10,000 | ||
| 31 July 2022 | £10,000 | £10,000 | ||
| 31 January 2023 | £7,000 | -£2,000 | £9,000 | |
| 31 July 2023 | £9,000 | £9,000 | ||
| 31 January 2024 | £15,000 | £4,000 | £11,000 | |
| Total tax liability | £18,000 | £22,000 |
It is important that your payments on account are made correctly and on time, as HMRC will charge late payment interest if the payments are late. Therefore if you are due to make a payment on account by the end of this month, please ensure it is arranged in good time.
If your balancing payment in January is paid late, HMRC can charge penalties in addition to the interest.
If you believe that your tax liability is going to be lower than the previous year, you can apply to reduce your payments on account. For example, using the summary above, if you believe that your tax liability for the tax year 2023/24 will be £15,000, you can reduce your payments on account in 31 January 2024 and 31 July 2024 to £7,500 each. Be aware that if the payments are reduced to less than half of your actual tax liability, HMRC will charge interest on the difference.
If you have any queries on payments on account, please do not hesitate to get in touch with your usual contact at Thompson Jenner and we will be happy to advise further.
