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HMRC has a policy where self-employed individuals must pay 50% of expected income tax & NI contributions in the following year in two instalments due January and July of the current year, which is called a payment on account.

To do this, it assumes your current tax year earnings / liabilities will be the same as the previous year.

So for example, I have to pay £6,956.70 on 31 January 2018 – calculated by income tax (£5,782) and a student loan repayment (£3,335) which totals £9,117, minus the two £2,392.65 payments on account made on 31 January 2017 and 31 July 2017, leaving £4,331.70. So that, plus the payment on account of £2,625.00, equals the amount due of £6,956.70.

Additionally, I have to pay £2,625 on 31 July 2018 as well, which is the second payment on account for this tax year. As the payment on account is £2,625, HMRC is assuming my Sep 2017 - Sep 2018 income tax will be £5,250.

However, I stopped contracting took a permanent role in July 2017, am earning less, and being taxed at source now, i.e. through PAYE. So my question is: why do I still have to make a payment on account?

Thanks.

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  • You were previously self-employed, right? For how long have you been doing your own tax return and making payments on account?
    – marktristan
    Nov 22, 2017 at 9:05
  • That's correct. I was contracting for a little under three years, and have been making payment on accounts since January 2016 (the first payment was huge as it covered both 2015 and 2016). 2017's payment covered 2017, so 2018's will cover 2018. I'm not contracting any more, but they're assuming I'll make the same amount next year as I did this year... which I definitely won't be!
    – dvniel
    Nov 22, 2017 at 9:29
  • relevant: thisismoney.co.uk/money/experts/article-2582760/… and gov.uk/understand-self-assessment-bill/payments-on-account (leading to form SA303)
    – AakashM
    Nov 22, 2017 at 13:13
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    On the link @AakashM posted there is a section Reduce your payments on account. Use that.
    – DumbCoder
    Nov 22, 2017 at 15:57

1 Answer 1

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The Government self-assessment website states you can ask HMRC to reduce your payments on account if your business profits or other income goes down, and you know your tax bill is going to be lower than last year.

There are two ways to do this:

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