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Last updated: 22 Mar 2023
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Act now to make the correct payments on account by 31 July

As the 5 April tax year end passes and the 31 July payment deadline approaches, you may wonder whether your second payment on account towards your 2022/23 tax liability is correct. The good news is, provided you attend to your tax affairs early there are ways to avoid overpaying.
What are payments on account and how are they calculated?

What are payments on account and how are they calculated?

If you are a self-assessment taxpayer, you may already be familiar with the phrase ‘payments on account’ (POA). They exist to spread the tax burden over the space of a year by requiring taxpayers to make advance payments towards their tax bill, where certain conditions are met.

The payments are made in two equal instalments on 31 January and 31 July, straddling the tax year end, with each payment broadly calculated as 50% of the previous year’s income tax liability. If the payments on account still do not cover the tax due for the year, a ‘balancing payment’, is payable by the normal Self-Assessment filing deadline of 31 January. As an example, the payments on account for the tax year ended 5 April 2023 are due for payment on 31 January and 31 July 2023, with any ‘top up’ payment payable on 31 January 2024.

By design, the payments on account regime enables The Exchequer to collect the tax due at a much earlier point from individuals who are in receipt of investment income and self-employment profits, because the tax is generally not withheld at source.

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Akin Coker

+44 (0)20 7556 1332
cokera@buzzacott.co.uk

What are payments on account and how are they calculated?

If you are a self-assessment taxpayer, you may already be familiar with the phrase ‘payments on account’ (POA). They exist to spread the tax burden over the space of a year by requiring taxpayers to make advance payments towards their tax bill, where certain conditions are met.

The payments are made in two equal instalments on 31 January and 31 July, straddling the tax year end, with each payment broadly calculated as 50% of the previous year’s income tax liability. If the payments on account still do not cover the tax due for the year, a ‘balancing payment’, is payable by the normal Self-Assessment filing deadline of 31 January. As an example, the payments on account for the tax year ended 5 April 2023 are due for payment on 31 January and 31 July 2023, with any ‘top up’ payment payable on 31 January 2024.

By design, the payments on account regime enables The Exchequer to collect the tax due at a much earlier point from individuals who are in receipt of investment income and self-employment profits, because the tax is generally not withheld at source.

Is there scope to reduce your 31 July tax payment on account?

Is there scope to reduce your 31 July tax payment on account?

While the POA regime undoubtedly serves its purpose, if your liability has decreased compared to the previous year, the level of your 31 July tax payment may not be appropriate and may result in an overpayment of tax. There are several reasons why this may be the case, such as a fall in untaxed earnings or profits or an increase in tax reliefs. If this is the case, it may be sensible to reduce your 31 July tax payment on account.

What happens if you over-reduce your payments on account?

What happens if you over-reduce your payments on account?

HMRC does penalise taxpayers who over-reduce their POA. HMRC will charge interest at the official interest rate (currently 6.5% per annum), on the amount underpaid. In cases where POA are reduced without substance or for those who consistently make claims which over-reduce their POA, HMRC can additionally charge a penalty. 

What should you do?

What should you do?

The good news is that you have four months between the end of the 2022/23 tax year and 31 July 2023, a period in which you can accurately calculate the tax due for 2022/23. By collating your 2022/23 tax return information as soon as possible, we can help determine your tax liability and make a claim to reduce the upcoming 31 July payment to match what you actually owe.

It should be noted that where your Income Tax liability for 2022/23 will be more than in the previous year, there’s no obligation to increase your 31 July payment on account unless a claim to reduce the 2022/23 payments on account has already been made, in which case the original payments should be made.

Need more time to pay your payments on account?

Need more time to pay your payments on account? 

The current cost of living crisis has put a strain on people’s finances and the last thing that anyone needs is to come up with the funds to settle another large bill within a short period of time. If you cannot pay your POA in full by the 31 July deadline - and meet certain criteria - you could potentially agree a time to pay arrangement (which can in some cases be interest free) and spread the cost over a longer period, typically 12 months, which would make things more manageable. It is better to approach HMRC in advance of the payment deadline, rather than liaising with them on or after the date that the tax is due.

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Speak to an expert

For professional assistance with the preparation of your 2022/23 tax return to establish the scope of reducing your payments on account, please fill out the form below and one of our tax specialists will be in touch to discuss your requirements and how we can help. 

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