I am getting a lot of queries relating to what payments on account are on personal tax
calculations, and especially, why they are there. Under Self-Assessment there is an underlying
assumption made by HMRC that everybody is going to keep making more and more money
year on year, which then means that they will have an increasing tax bill each year.
This January, you are paying income tax based on your income (for most people) in the year
that ended 31 March / 5 April 2023. We are now 10 months on from that year end, so HMRC
make the assumptions that:
A. Your 2023/24 tax bill we be higher than 2022/23
B. You have put aside your tax provision as you go along.
They therefore require a payment on account for 2023/24 alongside your payment for 2022/23 in all cases where your 2022/23 tax is more than £1,000.
Using numbers to illustrate:
Taking a 2022/23 tax liability of £12,000 and assuming first year of being over £1,000
Assumed 2022/23 liability £12,000
Payment towards 2023/24 £6,000
Total payable January 2024 £18,000, with another £6,000 due July 2024.
This gets even more complicated one year on, so again using numbers to illustrate:
Assumed 2023/24 liability £14,000
Deduct 2 x £6,000 already paid (£12,000)
Balance for 2023/24 £2,000
Payment towards 2024/25 £7,000 – half of £14,000
Total payable January 2025 £9,000, with another £7,000 due July 2025
Please don’t shoot the messenger – this is just the system as it exists.