Reducing your payments on account

Under the self-assessment system, a taxpayer is required to make payments on account of their tax liability where their income tax and Class 4 National Insurance bill for the previous tax year was £1,000 or more, unless at least 80% of their tax is paid at source, such as under PAYE.

When are payments due?

Where payments on account are required, these are due on 31 January in the tax year and 31 July after the end of the tax year. Any balance not covered by the payments on account must be paid by 31 January after the end of the tax year.

Consequently, payments on account for 2019/20 are due on 31 January 2020 and 31 July 2020, with any outstanding balance due by 31 January 2021.

How much is each payment on account?

Each payment on account is 50% of the tax and Class 4 National Insurance liability for the previous tax year. Class 2 National Insurance is not taken into account in computing payments on account, nor is capital gains tax. These are payable by 31 January after the end of the tax year.

Thus, if a taxpayer had a combined tax and Class 4 National Insurance liability of £3,000 for 2018/19, they would need to make payments on account of their 2019/20 liability of £1,500 on 31 January 2020 and 31 July 2020.

Changing the payments on account

If a person’s tax and Class 4 National Insurance liability is constant from year to year, the payments on account will exactly match the liability for the year. However, in practice this is unlikely and most people will under or over-pay. Where there is a shortfall, the excess must be paid by 31 January after the end of the tax year; if the payments on account exceed the liability for the year, the overpayment can be set against the first payment on account for the next year or refunded.

If you know or strongly suspect that your income will be lower for the current tax year than the previous tax year, for example, if your turnover has fallen because you have lost a major customer, you can apply to reduce your payments on account. There are various ways to do this.

If you know this when you file your self-assessment return, you can do it on the return. You can also do it online by:

• signing into your personal tax account;
• selecting the option to view your latest self-assessment return;
• and choosing ‘reduce payments on account’.

You can also apply to reduce payments on account by post, using form SA303.

If your know your tax liability for 2019/20 will be higher than for 2018/19, you do not have to increase your payments on account – you simply pay the excess by 31 January 2021.

A word of warning

If you are tempted to reduce your payments on account to below the level which they should be, remember that interest will be charged on the difference between what you have paid and what the payment on account should have been.

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