Can you reduce your self-assessment payments?

Self-assessment POAs

Payments on account are payable in advance of the normal tax payment date for a particular tax year in certain circumstances. They are based on the premise that your income tax bill from one year to the next will be the same. As that will almost never be the case the system allows payments on account (POAs) to be varied.

When must you make POAs?

You’re required to make POAs if both the following conditions apply: your total tax liability for a year other than that collected at source, e.g. through PAYE, exceeds £1,000; and that amount is 20% or more of your total tax liability. For example, if your tax liability was £15,000 but you paid £13,500 of this through PAYE you would not be required to make payments on account because only the first condition is met.

How much?

Each POA is equal to 50% of your self-assessment bill for the previous year. The first POA is payable on the 31 January that falls in the tax year and the second on 31 July following the tax year. For example, for 2022/23 the first POA is due on 31 January 2023 and the second on 31 July 2023. If the POAs add up to more than your actual self-assessment tax bill you have to pay the difference on the following 31 January, but if the POAs exceed your actual tax bill HMRC will send you a refund.

Tip. if you think your actual tax bill will be lower than the POAs you can apply to reduce them but if you think that your tax liability will be greater you still only need to pay the lower amount.

Reducing your POAs

There are two reasons why your actual tax liability might be less than the POAs: your income is less than it was in the previous tax year or your tax deductions are greater (or a combination). Even if one or both reasons exist you can’t assume that your tax bill will be less and reduce your POAs as other factors can affect your tax bill, e.g. a change in tax rates or insufficient tax collected through PAYE. The right way to decide if you’re entitled to reduce your POAs is to calculate as best you can how much your tax bill will be for the year.

Example. Sandy is a director shareholder of Acom Ltd. Most of her income from the company is received as dividends. Tax on dividends is payable through self-assessment. Sandy hasn’t yet completed her tax return for 2021/22 and so the POAs she made in January and July 2022 were each equal to 50% of her tax bill for 2020/21. In October 2022 she calculates an estimate of her 2021/22 tax which is lower by £1,200 than the POAs she’s paid. She applies to reduce the POAs by that amount. In November 2022 HMRC processes her application and credits her self- assessment account and soon after sends her a refund for £1,200. 

You can apply to reduce your POAs at any time after HMRC has calculated what tax you owe. If you reduce your POAs and your actual tax liability is greater, HMRC will charge interest on the difference between your reduced payments and the amount of the original POAs.