Payments on Account - what's HMRC's logic?
Discussion
Sole trader, relatively low profit because I'm getting the state pension plus two DB pensions, so I'm slowing down.
2023/4 I made around £10k profit, so had to make 2 payments on account for 2024/5.
The second one is not due yet, but I've submitted my self assessment for 2024/5. The second payment on account is now no longer due, and I've got a bill for the total tax due, less the first payment on account that I paid before Christmas. 2024/5 profit was lower, under £7k
So far, so good. Perfectly logical.
I've also been given notice of the payments on account for 2025/6, and this is what's confusing me.
I thought that payments on account were based on the previous tax year's return - 2 equal payments, adding up to the last tax bill.
That's how it's been since I've had to pay them "up front". Back then, I obviously had some unused (by pensions) personal allowance, which got carried over to my self-assessment.
For 2025/6, the payments on account are higher than they were for 2024/5, and about 50% higher than the actual tax due on the profit for 2024/5.
I know it'll all work itself out, and I could contact HMRC to get the payments on account reduced.
Just wondering what they base the figures on, if not the previous year's bill like I thought.
2023/4 I made around £10k profit, so had to make 2 payments on account for 2024/5.
The second one is not due yet, but I've submitted my self assessment for 2024/5. The second payment on account is now no longer due, and I've got a bill for the total tax due, less the first payment on account that I paid before Christmas. 2024/5 profit was lower, under £7k
So far, so good. Perfectly logical.
I've also been given notice of the payments on account for 2025/6, and this is what's confusing me.
I thought that payments on account were based on the previous tax year's return - 2 equal payments, adding up to the last tax bill.
That's how it's been since I've had to pay them "up front". Back then, I obviously had some unused (by pensions) personal allowance, which got carried over to my self-assessment.
For 2025/6, the payments on account are higher than they were for 2024/5, and about 50% higher than the actual tax due on the profit for 2024/5.
I know it'll all work itself out, and I could contact HMRC to get the payments on account reduced.
Just wondering what they base the figures on, if not the previous year's bill like I thought.
I remember when that came in - it meant basically paying two lots of tax in a year. It seems based on the presumption of PAYE civil servants that everybody earns the same amount every year, whereas any self-employed person knows that's the last thing that will happen. I see it as a money grab that probably causes more aggro that it's worth, as people constantly overpay or underpay then have to sort it out the year in a running waterfall of incorrectness.
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