Self-Assessment Payments on Account

What is a Payment on Account?

Individuals that have income where tax is not deducted at source, such as self-employment, dividend income or rental income, may be required to pay tax through their Self-Assessment each year.

Payments on account are tax payments made twice a year, by some Self-Assessment taxpayers, to spread the cost of the upcoming year’s tax.

They are calculated based on your previous year’s tax bill. In other words, HMRC is making a prediction about your future income based on your past income. The two instalments are due by 31 January and 31 July.

The payment on account system was introduced to help taxpayers stay on top of their tax payments each year and to also ensure that taxpayers do not benefit from paying their tax in arrears.

What if Income has Reduced?

If a taxpayer’s taxable income has reduced compared to the previous year, then the taxpayer is able to reduce the payment on account to reflect the lower tax liability.

You can reduce a payment on account via your online HMRC account.

However, if a payment on account is reduced and the tax liability is greater than the payments made, then HMRC can apply interest to the underpaid amount.

How and When to Make a Payment on Account?

You will need to use your payment reference when you pay your payment on account. This is your Unique Taxpayer Reference (UTR) number followed by the letter ‘K’.

Here is how you can pay your payment on account:

  • online using a debit card or corporate credit card
  • bank transfer (online or phone banking) or Direct Debit (make sure you leave enough time for a Direct Debit to go through – five working days the first time you set one up, or three the next time you pay using the same bank details)
  • at your bank or building society (if you still get paper statements from HMRC, or you have the paying-in slip HMRC sent you)
  • by cheque through the post

As previously mentioned, you will need to make your first payment on account by 31 January, giving you the opportunity to pay at the same time as clearing your bill for the previous tax year.

You will then have to remember to make your second payment on account by 31 July.

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