Self assessment - declaring an income increase

Early_Retire_Free

My understanding is that the tax on my 2024/25 earnings will be due in due in three instalments with two payments on account in January 2025 and July 2025 respectively and a final adjustment to reflect the actual tax due in January 2026.

The January and July instalments are estimated based on prior years income i.e. if your income is reasonably static then there should not be a big adjustment in the following January.

For this tax year my earnings will treble meaning that the instalments I pay will materially under estimate the tax due and will mean I have to pay a significant adjustment in January 2026.

I am ok with that because it means I will have the (interest) benefit of having that tax in the bank for over a year.  My question is, whether that's ok in the eyes of HMRC i.e. is there any legal obligation for me to ask for the payments on account to be adjusted to reflect the higher income?

Phoenix72

Early_Retire_Free said:

My understanding is that the tax on my 2024/25 earnings will be due in due in three instalments with two payments on account in January 2025 and July 2025 respectively and a final adjustment to reflect the actual tax due in January 2026.

The January and July instalments are estimated based on prior years income i.e. if your income is reasonably static then there should not be a big adjustment in the following January.

For this tax year my earnings will treble meaning that the instalments I pay will materially under estimate the tax due and will mean I have to pay a significant adjustment in January 2026.

I am ok with that because it means I will have the (interest) benefit of having that tax in the bank for over a year.  My question is, whether that's ok in the eyes of HMRC i.e. is there any legal obligation for me to ask for the payments on account to be adjusted to reflect the higher income?

None whatsover and there is no mechanism to make a claim to increase POA's.

Interesting you talk of earnings - is this employment income or self-employment?

Early_Retire_Free

Phoenix72 said:

Interesting you talk of earnings - is this employment income or self-employment?

Neither - its actually overseas deferred income (part of my early retirement income)

Dazed_and_C0nfused

Early_Retire_Free said:

Phoenix72 said:

Interesting you talk of earnings - is this employment income or self-employment?

Neither - its actually overseas deferred income (part of my early retirement income)

Don't forget that the need for POA are based on the previous years return.

So if your 2024-25 return shows a large liability you can expect POA to be created for 2025-26 based on the 2024-25 liability.

What sources of income you may/may not have in 2025-26 are of no relevance.  The POA for 2025-26 are determined by the previous years return.

If you know that the liability under Self Assessment will be less you can make a claim to reduce the 2025-26 POA but if you get that wrong and reduce them too much you will be charged interest on any POA which are paid late.

For example say each POA for 2025-26 is £12,000 and you reduce them to £2,000 each as you know the income received in 2024-25 isn't continuing.  But then a new source starts and your 2025-26 Self Assessment liability turns out to be say £7,000 then each POA for 2025-26 will be increased back to £3,500.