What is Payment On Account? Do I Need To Pay To HMRC?

In the UK, income tax payments on account are advance payments made towards your Self Assessment tax bill for the current financial year. These payments also include Class 4 National Insurance contributions for self-employed individuals. The amount due is calculated based on the previous year’s tax liability and must be paid twice a year — on 31st January and 31st July by midnight. Read on for everything you need to know about making your income tax payments on account to HMRC.

Who Needs to Make Income Tax Payments on Account to HMRC?

There are two scenarios, you must make payment on account:
(a) if previous self-assessment tax dues were £1,000 or more and
(b) The tax amount you paid during the current year is less than 80% of the tax due for the previous year.

This paid amount can include any tax deducted by your employer through your tax code or any interest deductions from your savings by your bank.

In case, the sum total of both payments (advance tax) is less than the self-assessment of the current year, you must make the remaining balancing payment to the HMRC by 31st January of the next calendar year.

Ways to make the payment

Understanding your income tax payments on account is key to avoiding unexpected tax bills. Many taxpayers, particularly the self-employed and landlords, are caught off guard when they first enter the Self Assessment system. Setting aside funds throughout the year ensures you can meet both the January and July deadlines comfortably.

Following are the several ways to make your payments.
(a) Online bank account
(b) Telebanking
(c) Debit or corporate credit card
(d) At your bank or building society
(e) Direct debit
(f)  Cheque by post
(g)  Tax code

When the 11-character payment reference is needed during the payment, you must use your Unique Taxpayer Reference (UTR) followed by the letter K.

How to Check Your Income Tax Payments on Account Balance with HMRC

By signing on to the HMRC online account or HMRC mobile app. If you are using smart phone, can download app from this link. You can view the tax bill and payment statements year-wise. You will find the payments made on account and payments on account due for the next self-assessment bill.

Example of Payment of Account

Scenario (a) Suppose your past year’s tax due for year 2022-23 from self-assessment was £3600, so you should be paying two payments on account (advance tax) towards year 2023-24

• £1800 due by 31st Jan 2024
• £1800 due by 31st July 2024

Scenario (B) Now consider scenario that actual self-assessment tax bill for 2023-24 is £5,000, whereas two payments on account have already been made of £1,800 each above.

So, the total payment on account made to the HMRC is £3,600 towards year 2023-24, and the balancing payment is £5,000-£3,600 =£1400 due to be paid.

Now, the first tax payment to be made on or before 31st January 2025 will be the:

• Balancing payment of £1,400
• 50% of £5,000=£2500

So, total 1st payment will be £3,900.

Then, follow on 31st July 2025, the second payment on account for 2024-25 has to be made will be £2,500 (50% of 5,000).

Scenario ( C) In the above scenario B, we assumed that your self-assessment tax computation for the year 2023-24 exceeds the total of the two payments on account. However, if the actual amount let’s say lower is £3000 and you have already paid £3600 (£1800 X 2) , you will not need to make a balancing payment on 31st January 2025. The excess amount will be adjusted against your final tax bill and the next payment on account due on 31st January 2025, and so on.

• 1st Payment on account 50% of £3000 = £1500 minus account excess £600 = £900 due on 31 Jan 2025
• 2nd payment of account is 50% of £3000 = £1500 due by 31st July 2025

For more detailed information, visit HMRC’s official guidance on income tax payments on account.

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