Why Am I Paying Tax Twice? Understanding Payments on Account
If you’ve ever looked at your Self Assessment tax payments and wondered, “Why am I paying tax twice?”, you’re certainly not alone.
The 31 July Self Assessment deadline is approaching, and for many taxpayers it means making their second payment on account.
At first glance, it can feel as though HMRC is asking you to pay the same tax bill all over again. Thankfully, that’s not what’s happening.
What is a payment on account?
A payment on account is HMRC’s way of collecting your Self Assessment tax throughout the year, rather than waiting until your tax return has been submitted.
If you’re required to make payments on account, your tax is usually split into two instalments:
- 31 January – First payment on account
- 31 July – Second payment on account
Each payment is normally 50% of your previous year’s Income Tax and Class 4 National Insurance bill.
Are payments on account really 'advance' payments?
You’ll often hear payments on account described as advance payments of your next tax bill. While that’s technically correct, it can be a little misleading.
The first payment is due on 31 January, by which point you’re already around 10 months into the tax year it’s contributes towards. The second payment is then due on 31 July, almost four months after that tax year has ended.
So, although you’re paying towards a tax bill before your tax return has been submitted, you’re not paying a year in advance. Instead, HMRC is collecting tax as the tax year progresses, rather than waiting until your Self Assessment return has been filed.
Am I paying more tax?
No.
Your July payment isn’t an extra tax charge. It’s simply the second instalment towards your overall Self Assessment liability for the tax year.
Once your tax return has been completed, HMRC calculates exactly how much tax you owe for the year. The payments on account you’ve already made are then deducted from your final bill.
If you’ve paid too much, you’ll normally receive a refund or the amount will be set against future tax liabilities. If you’ve paid too little, you’ll simply pay the remaining balance.
Does everyone have to make payments on account?
No.
You’ll generally need to make payments on account if:
- Your Self Assessment tax bill is more than £1,000, and
- Less than 80% of your tax has already been collected through PAYE.
If most of your tax is deducted through your salary, payments on account may not apply.
Can the July payment be reduced?
Sometimes.
If you expect your income to be lower than the previous year, you may be able to reduce your payments on account.
However, it’s important not to reduce them without good reason. If they’re reduced too much and you ultimately owe more tax than expected, HMRC may charge interest on the shortfall.
If you’re unsure whether a reduction is appropriate, it’s always worth speaking to your accountant first.
Don't forget the deadline
The deadline for making your second payment on account is 31 July.
Paying on time helps you avoid interest charges and keeps your Self Assessment account up to date.
Need some help?
If you’re unsure whether payments on account apply to you, or you’d like to understand how your Self Assessment payments have been calculated, we’re always happy to explain things in plain English.
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