HMRC - Payments on account

1spiral

HMRC state on their tax return

"If your 2 payments on account turn out to be different from your 2025 to 2026 tax bill HMRC
will:
• credit you with interest if you've paid more than you needed to
• charge interest if you've paid less than you needed to"

I can understand the first bullet point if they've over charged me but with the second, are they implying that if their figures under estimate my tax due for the following year, it is my responsibility to correct that otherwise an interest penalty will be applied?

dunstonh

If you do not request the figure to be changed then there is no interest to pay if it turns out to be different.   However, if you request the figure to be changed and end up underpaying you will be charged interest.

In the majority of cases, its best to leave the figure unchanged unless you are certain and even then put some margin on it.

mebu60

I believe that only applies if you change the amounts of the payments on account from their original calculation. 

Dazed_and_C0nfused

1spiral said:

HMRC state on their tax return

"If your 2 payments on account turn out to be different from your 2025 to 2026 tax bill HMRC
will:
• credit you with interest if you've paid more than you needed to
• charge interest if you've paid less than you needed to"

I can understand the first bullet point if they've over charged me but with the second, are they implying that if their figures under estimate my tax due for the following year, it is my responsibility to correct that otherwise an interest penalty will be applied?

No, it only applies if you make a claim to reduce the POA and then, when you file the return for the POA tax year, the POA need to be increased because you made an incorrect claim to reduce.

It is of absolutely no relevance whatsoever what element of your (POA related) liability changed or why, you would be charged interest.

fistfulofsteel

What interest rate do they use in each case?

Swipe

The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

late payment interest rate — 8.00% from 27 August 2025

repayment interest rate — 3.00% from 27 August 2025

https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates

1spiral

Thanks everyone. You've confirmed what I expected was the case. Wrt the first bullet point, do they give credit interest if it is them that over estimate the amount to pay. I'm currently buying a house so my interest this year will be significantly lower due to having much less cash. 

Swipe

1spiral said:

Thanks everyone. You've confirmed what I expected was the case. Wrt the first bullet point, do they give credit interest if it is them that over estimate the amount to pay. I'm currently buying a house so my interest this year will be significantly lower due to having much less cash. 

Yes, you'll get interest credited if your payment on account amount was too high. If both HMRC estimated POA total amounts were too high for the previous tax year, you can submit your SA before the 31st July payment is due and the second payment amount will get automatically adjusted down so you don't overpay. 

1spiral

Swipe said:

1spiral said:

Thanks everyone. You've confirmed what I expected was the case. Wrt the first bullet point, do they give credit interest if it is them that over estimate the amount to pay. I'm currently buying a house so my interest this year will be significantly lower due to having much less cash. 

 you can submit your SA before the 31st July payment is due and the second payment amount will get automatically adjusted down so you don't overpay. 

That was going to be my next question. Thanks for the reply.

Dazed_and_C0nfused

1spiral said:

Swipe said:

1spiral said:

Thanks everyone. You've confirmed what I expected was the case. Wrt the first bullet point, do they give credit interest if it is them that over estimate the amount to pay. I'm currently buying a house so my interest this year will be significantly lower due to having much less cash. 

 you can submit your SA before the 31st July payment is due and the second payment amount will get automatically adjusted down so you don't overpay. 

That was going to be my next question. Thanks for the reply.

Just to be clear your second payment on account won't be adjusted in isolation.

POA have to be within 1 pence of each other so if they were originally say £700 each and your actual liability turned out to be £800 then each POA would be reduced to £400.

If you had paid £700 in January then the £300 you had overpaid would be allocated to the July POA along with some interest from HMRC.

The January POA would not remain £700 and July be £100.

1spiral

Dazed_and_C0nfused said:

1spiral said:

Swipe said:

1spiral said:

Thanks everyone. You've confirmed what I expected was the case. Wrt the first bullet point, do they give credit interest if it is them that over estimate the amount to pay. I'm currently buying a house so my interest this year will be significantly lower due to having much less cash. 

 you can submit your SA before the 31st July payment is due and the second payment amount will get automatically adjusted down so you don't overpay. 

That was going to be my next question. Thanks for the reply.

Just to be clear your second payment on account won't be adjusted in isolation.

POA have to be within 1 pence of each other so if they were originally say £700 each and your actual liability turned out to be £800 then each POA would be reduced to £400.

If you had paid £700 in January then the £300 you had overpaid would be allocated to the July POA along with some interest from HMRC.

The January POA would not remain £700 and July be £100.

But in practical terms, I would only be paying £100 in July. I think the point you're making here is that due to the rebalancing, there will also be a small amount of interest due to me. Is that correct?