What are payments on account?

For those individuals that have a tax liability over £1k, you will normally automatically be required by HMRC to make ‘payments on account’. This means that in addition to your tax liability for that year, HMRC will automatically assume you are going to earn similar amounts next year and therefore you will need to make payments in advance for next year – these payments are made in January and July.

When it then comes to the following year’s return, you will have already made some payments towards the tax liability.

If your income is genuinely expected to be lower in a future year, we have the ability to elect to reduce your payments on account as a result. This should only be done sparingly and if there is a genuine reason to do so, however, this can save you thousands and significantly improve your cash flow.

You will not need to make payments on account if the majority of your income is taxed at source. 

If you primarily have an employed PAYE role and 80% of your overall tax liability is already taxed at source, HMRC will not ask you to make payments on account.

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