Payment on account (self assessment)

[bmwmike]

Hello

Can anyone clarify under what circumstances a PAYE employee would be expected by HMRC to make a payment on account please?

I can only find info for self employed people.

One year I was asked during a self assessment to make a payment and managed to get it cancelled after phoning them. Can't remember the reason. Currently working out tax for the remainder of the year via salary sacrifice etc.

Thanks
Mike

[anonymous-user]

Where you have taxable income outside of your PAYE income.

[SunsetZed]

I could be wrong but I would assume that this also includes PAYE employees who are over the child benefit threshold but claiming child benefit.

[SS2.]

bmwmike said:

Can anyone clarify under what circumstances a PAYE employee would be expected by HMRC to make a payment on account please?

It largely applies to those within the Self-Assessment system.

[OutInTheShed]

AIUI, it's anyone who the Church estimate will have a tax bill over a certain level (based on previous year).
This could be due to property or other investment income.

So if your tax return generates a £2000 bill, they (also) ask for a £1000 payment on account during the following tax year.

[bmwmike]

Not claiming child benefit.

OutInTheShed said:

So if your tax return generates a £2000 bill, they (also) ask for a £1000 payment on account during the following tax year.

Ah that could be it, if there is a reasonably large tax bill. So someone has a good year, owes (say) 5k in tax, and has to stump up 5k in tax plus another 2.5k for the following year? What happened to the "as you earn" part..

So.. if someone was on track for a reasonably large tax bill (all under PAYE) and they realised this during the tax year, and to avoid the payment on account at all costs (not giving anyone free loans), the answer would be to adjust the tax coding so the machine can suck in the extra money during that tax period and not later during self assessment, i guess?


Edit this is it: https://www.gov.uk/understand-self-assessment-bill... misread it before as being for self employed only

Threshold is 1k in tax triggers payment on account.

Thanks all.

Edited by bmwmike on Wednesday 24th August 10:52

[FatboyKim]

bmwmike said:

Threshold is 1k in tax triggers payment on account.

That's right, £1k triggers the need for payments on account, but one can apply to reduce them (to £nil if necessary) if income for the next tax year is known to be, or very likely to be, down.

If income turns out to be similar or greater after payments on account have been reduced, then you'll need to pay it back plus some interest. But that is more relevant to self-employed workers.

[bmwmike]

FatboyKim said:

bmwmike said:

Threshold is 1k in tax triggers payment on account.

That's right, £1k triggers the need for payments on account, but one can apply to reduce them (to £nil if necessary) if income for the next tax year is known to be, or very likely to be, down.

If income turns out to be similar or greater after payments on account have been reduced, then you'll need to pay it back plus some interest. But that is more relevant to self-employed workers.

Thanks, good info. HMRC interest rates are a nice business if you can get it:

HMRC said:

late payment interest, set at base rate plus 2.5%

[Mr Whippy]

Arguably it is Pay As You Earn because it’s on account for the tax year in which it’s earned, extrapolated from previous years earnings.

Ie, you earn in 22/23, but can pay final bill in Jan 24.

They’ll look at 21/22 to see how much you’ve probably made by half way through 22/23, and ask for it then, rather than all the way through to Jan 24, getting on for a year and a half later from when that money was earned.


It’s ultimately never anything more than what you’d owe if you actually DID pay tax as you earned it.


I think if you earn say £30,000 one year, then £10,000 the next, you’d get a payment on account a bit disproportionate to what was going on, but you can dispute/correct any way.


This new ‘digital’ tax will solve all this though I think as you’ll do interim updates and payments through the tax year iirc.

[Eric Mc]

A few points worth noting -

Payments on Account are NORMALLY due if your calculated Self Assessment tax liability exceeds £1,000.

For example, if you calculate that your 2021/22 Self Assessment tax bill comes to £2,300, you will be expected to make two Payments on Account for 2022/23 of £1,150 each.

If your Self Assessment tax bill for 2021/22 comes to £850, you will not be asked to make any 2022/23 Payments on Account because the 2021/22 liability is less than £1,000.

There are some circumstances where no Payments on Account are due even if your liability exceeds £1,000.

i) if your Self Assessment tax bill is mainly caused by a Capital Gains Tax bill (CGT), then, if the non CGT part of the liability is less than £1,000, no Payments on Account are due

ii) if the circumstances that gave rise to your Self Assessment tax bill for (say) 2021/22 are not relevant for 2022/23 (such as rental income or self employment income ceasing) you can have the 2022/23 Payments on Account reduced to a more realistic level - or even Nil if appropriate

iii) as far as the OP is concerned, if most of your 2021/22 tax bill (i.e. 80% or more) was paid through deduction at source - basically PAYE for most people, then no matter how big the Self Assessment element of your 2021/22 liability may be, you will not be asked to make 2022/23 Payments on Account.

As far as the introduction of Making Tax Digital is concerned, at the moment HMRC has not got any plans to increase the frequency at which people pay Income Tax.i.e. people will still have to pay an annual sum plus Payments on Account if necessary. This MAY change as MTD beds in.

Please note that CGT on the disposal of residential properties is now effectively outside of Self Assessment as we now have to file such events separately under a digital filing system and pay the resultant CGT within 60 days. CGT on other types of assets (such as commercial or agricultural properties) is still within Self Assessment - for the moment.

[bmwmike]

Eric Mc said:

A few points worth noting -

Payments on Account are NORMALLY due if your calculated Self Assessment tax liability exceeds £1,000.

For example, if you calculate that your 2021/22 Self Assessment tax bill comes to £2,300, you will be expected to make two Payments on Account for 2022/23 of £1,150 each.

If your Self Assessment tax bill for 2021/22 comes to £850, you will not be asked to make any 2022/23 Payments on Account because the 2021/22 liability is less than £1,000.

There are some circumstances where no Payments on Account are due even if your liability exceeds £1,000.

i) if your Self Assessment tax bill is mainly caused by a Capital Gains Tax bill (CGT), then, if the non CGT part of the liability is less than £1,000, no Payments on Account are due

ii) if the circumstances that gave rise to your Self Assessment tax bill for (say) 2021/22 are not relevant for 2022/23 (such as rental income or self employment income ceasing) you can have the 2022/23 Payments on Account reduced to a more realistic level - or even Nil if appropriate

iii) as far as the OP is concerned, if most of your 2021/22 tax bill (i.e. 80% or more) was paid through deduction at source - basically PAYE for most people, then no matter how big the Self Assessment element of your 2021/22 liability may be, you will not be asked to make 2022/23 Payments on Account.

As far as the introduction of Making Tax Digital is concerned, at the moment HMRC has not got any plans to increase the frequency at which people pay Income Tax.i.e. people will still have to pay an annual sum plus Payments on Account if necessary. This MAY change as MTD beds in.

Please note that CGT on the disposal of residential properties is now effectively outside of Self Assessment as we now have to file such events separately under a digital filing system and pay the resultant CGT within 60 days. CGT on other types of assets (such as commercial or agricultural properties) is still within Self Assessment - for the moment.

Hi Eric. I'm the OP and to your 3rd point (iii) I paid all income via PAYE but still got asked to pay on account for the following tax year. This is a few years ago and am not sure of the reasons but I think the tax bill was around 5k.

I'm trying to anticipate that happening again for this tax year hence this thread. The answer is increase PAYE via tax code while I'm still in this year, I think. Salary sacrifice route is already maxed out.

Thanks

Edited by bmwmike on Thursday 1st September 10:29

[Eric Mc]

If your total tax liability for the year is covered 80% or more through PAYE or other taxes deducted at source - then you should never be asked to make Payments on Account.

That is a fundamental rule in the Self Assessment system.