Is "Payment on account" for self assessment deducted from the next calculation?

bigpat

I'm a landlord, as well as an employee, and have been completing self assessment tax for about 15 years. I normally get my tax return in soon after my P60 becomes available. A year ago, doing my 2023-24 return, it said I had to pay £3,200 by January (which I did), but also an additional £1600 on account for 2024-25. That was the first time ever I was required to pay an amount on account.

The £1600 is due by 31st July this year so I haven't paid it yet but I'm doing my next tax return now. This year, they calculate that I owe £3600 for 2024-25, but also an additional £1800 on account for 2025-26. The calculation says "This amount does not take into account any 2024-25 payments on account you may have already made".

This is the part that's confusing me. Why doesn't it take into account the £1600 I'll be paying in July? Shouldn't the tax I'll have to pay next January be reduced because I will have paid £1600 towards it by July?

Or does it simply mean that, as of today, I haven't paid it yet, but that when I do pay, then the amount I'll have to pay in January will be reduced?

As I said, I'm new to payments on account, so maybe this stuff is clear to many people, but it's got me concerned about how much I need to budget for.

Dazed_and_C0nfused

bigpat said:

I'm a landlord, as well as an employee, and have been completing self assessment tax for about 15 years. I normally get my tax return in soon after my P60 becomes available. A year ago, doing my 2023-24 return, it said I had to pay £3,200 by January (which I did), but also an additional £1600 on account for 2024-25. That was the first time ever I was required to pay an amount on account.

The £1600 is due by 31st July this year so I haven't paid it yet but I'm doing my next tax return now. This year, they calculate that I owe £3600 for 2024-25, but also an additional £1800 on account for 2025-26. The calculation says "This amount does not take into account any 2024-25 payments on account you may have already made".

This is the part that's confusing me. Why doesn't it take into account the £1600 I'll be paying in July? Shouldn't the tax I'll have to pay next January be reduced because I will have paid £1600 towards it by July?

Or does it simply mean that, as of today, I haven't paid it yet, but that when I do pay, then the amount I'll have to pay in January will be reduced?

As I said, I'm new to payments on account, so maybe this stuff is clear to many people, but it's got me concerned about how much I need to budget for.

It's because it is a calculation of your liability for the year, taking into account any tax deducted at source like PAYE.  But not any tax you have paid direct.

The calculation will never include tax you have paid.

But based on what you have posted you will have the following payment to make once you submit that return.

31 July 2025 £1,600 (second POA for 2024-25)

31 January 2026 £400 (Balancing Payment for 2024-25)

31 January 2026 £1,800 (first POA for 2025-26)

31 July 2026 £1,800 (second POA for 2025-26)

You need to understand the difference between your Self Assessment calculation and your statement of account (what you actually need to pay and when).

Bookworm225

have you read the examples?

Understand your Self Assessment tax bill: Payments on account - GOV.UK

You can of course log into your personal tax account a week or so after submitting the tax return and in there it should by then show the real balance owed, ie net of any POA. That figure is the one you can be confident in.

Please also understand POA is never reduced, the two payments are the amount requested and do not change. The adjustment is when you come to the balancing charge which may, or may not, be more than 3200 depending on what your actual tax return says is your liability for that year 
If it is less then you still make the 1600 payment but will then get a refund. If more you have still make the 1600 payment but have to also top it up to your actual liability.

please study the example carefully so you understand that the January payment covers both the tax year ended and the first POA for the next year so budget for that as it will be bigger than you currently think.

bigpat

Dazed_and_C0nfused said:

You need to understand the difference between your Self Assessment calculation and your statement of account (what you actually need to pay and when).

Yes I think that's where I was getting muddled.

So they have calculated that I owe £3600 for the full year 24-25, but after I pay the £1600 in July, that will reduce to £2000 to pay in Jan. However, at that point I will also have to pay £1800 in advance for 25-26.

Is that how it works?

I think what threw me is the term "balancing" because last year was the first year I'd ever had to pay in advance (I think I've passed a threshold somewhere.) Therefore, the £3200 I paid in January was for the full year and wasn't really "balancing" anything. But I suppose they call it that anyway.

bigpat

You can of course log into your personal tax account a week or so after submitting the tax return and in there it should by then show the real balance owed, ie net of any POA. That figure is the one you can be confident in.

Yes I should have thought of that. Until last year, every year since I've been paying self assessment, I had filed the return in May, paid the full amount in the following January, and that was that. So I had never bothered with logging into my personal tax account, as there was only one figure to be aware of and I already knew that from my tax return.

You've explained this well, thank you. I think I get it now.

Nomunnofun1

bigpat said:

Dazed_and_C0nfused said:

You need to understand the difference between your Self Assessment calculation and your statement of account (what you actually need to pay and when).

Yes I think that's where I was getting muddled.

So they have calculated that I owe £3600 for the full year 24-25, but after I pay the £1600 in July, that will reduce to £2000 to pay in Jan. However, at that point I will also have to pay £1800 in advance for 25-26.

Is that how it works?

I think what threw me is the term "balancing" because last year was the first year I'd ever had to pay in advance (I think I've passed a threshold somewhere.) Therefore, the £3200 I paid in January was for the full year and wasn't really "balancing" anything. But I suppose they call it that anyway.

No - it’s not correct - see the post from Dazed earlier.

 If your liability for 2024/25 is indeed £3600 you need to deduct from this the TWO  payments on account. You made one in January 2025 of £1600 and another £1600 is due in July. This leaves £400 to be laid on January 2026. 

That settles 2024/25!

For 2025/26 you pay 

A payment on account In January 2026 of £1800 and another in July 2026 (£1800 is half of your total bill for 2024/25)

Any balance will be due in January 2027.

The balancing payment for 2023.24 was £3200. This again was ‘Total due less payments on account made’ In your case this was £3200 less zero. 

Dazed_and_C0nfused

bigpat said:

Dazed_and_C0nfused said:

You need to understand the difference between your Self Assessment calculation and your statement of account (what you actually need to pay and when).

Yes I think that's where I was getting muddled.

So they have calculated that I owe £3600 for the full year 24-25, but after I pay the £1600 in July, that will reduce to £2000 to pay in Jan. However, at that point I will also have to pay £1800 in advance for 25-26.

Is that how it works?

I think what threw me is the term "balancing" because last year was the first year I'd ever had to pay in advance (I think I've passed a threshold somewhere.) Therefore, the £3200 I paid in January was for the full year and wasn't really "balancing" anything. But I suppose they call it that anyway.

Did you not already pay £1,600 in January 2025, as the first POA for 2024-25 🤔

Did you pay that or not?

A year ago, doing my 2023-24 return, it said I had to pay £3,200 by January (which I did), but also an additional £1600 on account for 2024-25. That was the first time ever I was required to pay an amount on account.

Also, where does paying "in advance" come into this?  There is no paying in advance with Self Assessment.  January 2025 is roughly three quarters of the way through the 2024-25 tax year.  If you pay some tax on your earnings as an employee you could have been paying that from April 2024 (for 2024-25), nine months earlier than that POA!

bigpat

Dazed_and_C0nfused said:

Did you not already pay £1,600 in January 2025, as the first POA for 2024-25 🤔

Did you pay that or not?
|
|

Also, where does paying "in advance" come into this?  There is no paying in advance with Self Assessment.  January 2025 is roughly three quarters of the way through the 2024-25 tax year.  If you pay some tax on your earnings as an employee you could have been paying that from April 2024 (for 2024-25), nine months earlier than that POA!

I've been rounding numbers a bit, but yes I did pay that, a total of around £4800 in January. Good point!

I was using "in advance" to mean "earlier than I'd had to pay tax in other years", as I have never been required to pay in July before. But yes, I see that it's not technically in advance.

OK this is better news than I had feared then.

A year ago, they told me that in January I would have to pay what amounted to a year and a half tax, plus a further half year tax in July. I've already paid the year and a half and will be paying the half-year in July. So I was confused by the statement that said "This amount does not take into account any 2024-25 payments on account you may have already made".

I think it would be clearer if the tax "account" and the tax "return" were more closely integrated, a bit like my energy bills that say "you've paid X, you've used Y, therefore as it stands you owe Z."

Nomunnofun1

"This amount does not take into account any 2024-25 payments on account you may have already made"

The CALCULATION does not take into account any payments on account made. It is simply a mechanism to tell you what your final bill is! 

People are always caught out when making payments on account for the first time - but the system hasnt changed in 28 years!

bigpat

Well yes, but for people who are new to making payments on account, we don't know that the system hasn't changed in 28 years. Having done it one way for 15 years, this is new to me.