Self assessment: Payments on account due to employment

hello1254a

I am full-time employed and part-time self-employed. My PAYE code got changed between jobs in 21-22 resulting in me owing some tax for that year, which I need to pay through self-assessment. My self-employment is a small side business and makes profits in ~3K per year, so the self-employed side will not go over the £1000 threshold for payments on account. However the one-off tax owed for employment this year has caused me to exceed the threshold.

I know I can claim to reduce payments on account (I am reducing it by the employment tax owed), but this appears to not change anything in the tax return calculations. Is this something that needs to wait for HMRC to look at and approve?

Some of the HMRC advisers I spoke to stated I can request the whole tax owed to be paid through my PAYE code over the next year (provided the return is submitted by end of December). However when I select the boxes it still states payment owed by 31st of January 2023.  Unfortunately, I had conflicting advice from another HMRC adviser. Does anyone know if it is true?

[Deleted User]

I think what you have to do is be a little patient. It takes a few days for your account to update after the submission. 

However - you do seem to be a little confused. Payments on account are based on total liability  on all income outstanding for the previous tax year - not just one source. You can reduce the payments on account to whatever you believe the following year’s liability to be but, as they are for the following year, will not appear on your tax calculation. Be careful - if you reduce by too much, and they subsequently are each at least half of what ultimately becomes due in 2022/23, you will pay interest.

Example - amount owed for 2021/22 is £1200. This is payable on 31st January 2023. Payments on account will £600 on 31st January 2023 and £600 on 31st July 2023. The payments on account do not form part of the calculation for 2021/22 but are based on it. You can reduce them to whatever you wish but you account will not be updated for a few days. 

HMRC are correct with regard to the collection being collected through your code number. However the amount due will still appear on the calculation because - that is the calculation! There has to be some record of the tax liability for that year, regardless of how it is payable. It will not appear on your account, however when the system has had time to update. 

P.S. - the deadline for submission if you wish the amount to be collected through your PAYE code number is not the end of December but the 30th for some reason - don’t get caught out!

hello1254a

Thank you for your very informative post, this has cleared up most of my misunderstanding. I assumed there calculation was all automated and that I messed up the return!

purdyoaten2 said:

However - you do seem to be a little confused. Payments on account are based on total liability  on all income outstanding for the previous tax year - not just one source. You can reduce the payments on account to whatever you believe the following year’s liability to be but, as they are for the following year, will not appear on your tax calculation. Be careful - if you reduce by too much, and they subsequently are each at least half of what ultimately becomes due in 2022/23, you will pay interest.

Example - amount owed for 2021/22 is £1200. This is payable on 31st January 2023. Payments on account will £600 on 31st January 2023 and £600 on 31st July 2023. The payments on account do not form part of the calculation for 2021/22 but are based on it. You can reduce them to whatever you wish but you account will not be updated for a few days.

Based on your example above, if I owed for 21-22 £1600 (£1000 from employment, £600 self-employment) then I must pay a payment on account of £800 in January and another in June. I can request HMRC reduces payments on account by £800 (or £1600?) so I will only owe the £1600 by January 31st deadline. Is this correct?

As PAYE coding issue was due to job change, I do not expect there to be any outstanding tax owed other than self-assessment which will be below the £1k threshold.

[Deleted User]

What will you owe for 2022/23 in total- not for self-employment or employment but in total? Let’s say it’s £800 as a best estimate.. You need to reduce each payment to £400. 

So - you pay: 

Balance owed for 2021/22 - £1600 due 31st January unless you ask to be collected through your PAYE code. 

First payment on account for 2022/23 - £400 due 31 January 2023. 

Second payment on account for 2022/23 - £400 due 31st July 2023. 

Dazed_and_C0nfused

hello1254a said:

Thank you for your very informative post, this has cleared up most of my misunderstanding. I assumed there calculation was all automated and that I messed up the return!

purdyoaten2 said:

However - you do seem to be a little confused. Payments on account are based on total liability  on all income outstanding for the previous tax year - not just one source. You can reduce the payments on account to whatever you believe the following year’s liability to be but, as they are for the following year, will not appear on your tax calculation. Be careful - if you reduce by too much, and they subsequently are each at least half of what ultimately becomes due in 2022/23, you will pay interest.

Example - amount owed for 2021/22 is £1200. This is payable on 31st January 2023. Payments on account will £600 on 31st January 2023 and £600 on 31st July 2023. The payments on account do not form part of the calculation for 2021/22 but are based on it. You can reduce them to whatever you wish but you account will not be updated for a few days.

Based on your example above, if I owed for 21-22 £1600 (£1000 from employment, £600 self-employment) then I must pay a payment on account of £800 in January and another in June. I can request HMRC reduces payments on account by £800 (or £1600?) so I will only owe the £1600 by January 31st deadline. Is this correct?

As PAYE coding issue was due to job change, I do not expect there to be any outstanding tax owed other than self-assessment which will be below the £1k threshold.

You have misunderstood part of this.

It doesn't matter why the tax is owed, if you expect to owe say £1,000 for 2022:23 then you could reduce your 2022:23 POA to £500 (each POA).

But owing less for 2022:23 might then stop the need for any POA with none being due for 2023:24.

The key thing to remember is the initial requirement for POA is based on the previous tax years position.

Also, if the 2021:22 liability is going to be collected via your 2023:24 tax code then there won't be any POA for 2022:23 as you wouldn't have paid anything direct to HMRC for 2021:22.

[Deleted User]

Dazed_and_C0nfused said:

hello1254a said:

Thank you for your very informative post, this has cleared up most of my misunderstanding. I assumed there calculation was all automated and that I messed up the return!

purdyoaten2 said:

However - you do seem to be a little confused. Payments on account are based on total liability  on all income outstanding for the previous tax year - not just one source. You can reduce the payments on account to whatever you believe the following year’s liability to be but, as they are for the following year, will not appear on your tax calculation. Be careful - if you reduce by too much, and they subsequently are each at least half of what ultimately becomes due in 2022/23, you will pay interest.

Example - amount owed for 2021/22 is £1200. This is payable on 31st January 2023. Payments on account will £600 on 31st January 2023 and £600 on 31st July 2023. The payments on account do not form part of the calculation for 2021/22 but are based on it. You can reduce them to whatever you wish but you account will not be updated for a few days.

Based on your example above, if I owed for 21-22 £1600 (£1000 from employment, £600 self-employment) then I must pay a payment on account of £800 in January and another in June. I can request HMRC reduces payments on account by £800 (or £1600?) so I will only owe the £1600 by January 31st deadline. Is this correct?

As PAYE coding issue was due to job change, I do not expect there to be any outstanding tax owed other than self-assessment which will be below the £1k threshold.

You have misunderstood part of this.

It doesn't matter why the tax is owed, if you expect to owe say £1,000 for 2022:23 then you could reduce your 2022:23 POA to £500 (each POA).

But owing less for 2022:23 might then stop the need for any POA with none being due for 2023:24.

The key thing to remember is the initial requirement for POA is based on the previous tax years position.

Also, if the 2021:22 liability is going to be collected via your 2023:24 tax code then there won't be any POA for 2022:23 as you wouldn't have paid anything direct to HMRC for 2021:22.

Yes - the final point was not highlighted in my last post. 

Jeremy535897

See https://www.gov.uk/understand-self-assessment-bill/payments-on-account

Given that the self employment income is so modest, I'm a bit surprised the 80% threshold was not met (see above link), unless the employment income was small and/or there was an underpayment on it.

[Deleted User]

Jeremy535897 said:

See https://www.gov.uk/understand-self-assessment-bill/payments-on-account

Given that the self employment income is so modest, I'm a bit surprised the 80% threshold was not met (see above link), unless the employment income was small and/or there was an underpayment on it.

Presumably something to do with the circumstances around the tax code change mentioned in the first post.