Payments on account How much you will have to pay
Normally each payment is half the previous year's tax bill
Payments on account are made twice a year. Normally each instalment is half your previous year’s tax bill.
This includes class 4 National Insurance contributions but excludes capital gains tax, student loan repayments and any other tax that’s been deducted at source (such as through PAYE).
If the payments you’re due to make are greater than your tax bill, you can get them reduced. Contact HMRC to arrange this immediately. You can download form SA303 from the HMRC website.
Calculating what you pay
If you work out your own tax, you also calculate your own payments on account for the next tax year. Put this first payment in box 10 of the Tax Calculation Summary pages (TCS1) you complete in addition to the main tax form.
If HMRC works out your tax bill, it will send you a notice confirming your tax liability for the 2008-2009 tax year, and based on this, your payments on account for the following year. Contact HMRC straight away if you have queries.
Reducing your payments on account
If you think your tax bill for 2010-11 will be lower than 2009-2010, you can ask to make smaller payments on account.
Justifying a reduction
To do this you must be able to justify a reduction. It might be because:
- You know your income (or profits, if you're self employed) will be lower.
- You have more tax deducted at source
- You have more tax allowances or reliefs – for example, becoming eligible for an age-related allowance
Filling in the forms
If HMRC works out your tax, you should get a statement of account before the first payment is due, provided you’ve submitted your return by 31 October. This will contain an SA303 form, which you can use to reduce your payments on account.
If you calculate your own tax, tick box 9 on the supplementary Tax Calculation pages (if you’ve already sent in your tax return, complete form SA303). Put the new payment amount in box 10 and explain why you’ve reduced your payments in the ‘Any other information’ box 16.
Alternatively, you can write to your tax office stating that you want to reduce your payments (giving a reason). If you file online you can also make an online claim.
Underpaying means you'll pay interest
If it turns out that you’ve underpaid tax after you’ve asked for payments to be reduced, you’ll have to pay interest on the difference. Interest is charged from the date the payment was due – 31 January or 31 July. HMRC charges interest at a variable rate, currently 3.0%.
Overpaying
If your payments on account are more than the tax you owe after you’ve asked for payments to be adjusted, you will receive interest on the difference, the current rate is set at 0.5%.
For more information if you're self-employed, see our book Working for Yourself.