Payments on account Who has to make payments on account?

Certain people make payments on account

Payments on account only have to be paid by those who complete a self-assessment tax return, generally people who are self employed, have significant investment or freelance income, or have income from property.

Those who make payments on account pay tax earlier than this, in two interim payments, based on their total income for the previous year. One instalment is paid at the end of January and the other at the end of the July following the end of the tax year.

Instead, if you receive taxable income that hasn’t already had tax deducted at source, you generally have until the 31 January following the end of the tax year to pay the tax that’s due. 

Exemptions

You are not required to make payments on account if either:

• Your total income tax due from all sources in the previous tax year, after deduction of tax collected at source, was £1,000 or less, or
• At least 80% of the tax due in the previous tax year was deducted at source.

What this means

This doesn’t mean you don’t have to pay tax on your income. 

If either of the above applies, you simply make a single payment by the 31 January following the end of the tax year (31 January 2011 for the 2009-2010 tax year).

Alternatively, you can ask HMRC to collect the tax owing via your PAYE code, providing the amount outstanding is less than £2,000. 

HMRC will guarantee to do this only if you file your tax return by 31 October (30 December if you file online). If you don’t want your underpaid tax deducted by PAYE, you must tick box 2 on page TR5 of your main tax return.

For more information if you're self-employed, see our book Working for Yourself. 

More on this...

• Tax query? Speak to our experts on the Which? Money Helpline
• Take a look at our full guide to tax on your savings and investments
• See our guide to letting a property