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Original poster

"Money on account" HMRC question

78 replies

summerlovingvibes · 05/02/2025 21:49

Please can someone very simply explain this to me.

DH and I do a self assessment tax return each year.

I don't have to put anything on account as don't have a big enough bill. Used to but my income has dropped as now only work PT.

DH puts thousands on account every year. Towards the next tax year. But where does this money go?? I just don't understand it!

Last year he paid his 4k tax bill and then had to put another 4k on account for this year. This year his tax bill is 4k and it asks for that amount... plus more for on account for next year.

So where is the money on account from last year? Why don't they just automatically do a calculation to take in account what you have already paid?

It's such a ridiculous system!

It just rolls on every year but I'd like to know where all the supposed "money on account" goes!

OP posts:
savingthespecs · 05/02/2025 21:53

It goes on account doesn't it? So his last bill of his working life will have been paid at the time of the penultimate one?

DreamW3aver · 05/02/2025 21:55

The Jan on account amount is a part payment of the tax year that you're in, that then sits on your account until you do your next tax return the July payment is added to that and those two are compared with your final tax figure to see if there's anything left to pay or return the following Jan

It is a bit convoluted but if you write it down with dates and tax years it should make sense

tigger1001 · 05/02/2025 21:55

It's offset against the balancing payment due .

So if (for example) he was due 4K and he had made payments of 2k in January and July he would have no balancing out payment due and would only be due payments on account for the following year.

Guineapiggywiggy · 05/02/2025 21:55

You pay on account but it’s still in arrears to when you’ve earned it

Original poster
summerlovingvibes · 05/02/2025 22:11

So surely if he pays on account for the next year then it should mean that the following year tax bill is reduced?

Every year it seems like he is paying a full amount of tax (for example 4k ish on 16k of earnings - he is in higher tax bracket ) and then has to pay another 4k on account for next year.

Next year comes round, and he has a tax bill of 4k ish, so pays this (which would mean 4k on account and 4k new) and then another 4k on account. Next year rolls round... same thing. So it feels like every year when he "puts money on account" it doesn't actually reduce his bill??

OP posts:
GreyFleece · 05/02/2025 22:20

If he had a tax liability outstanding of £4k at 31/01/25 this is after payments on account. I.e the full tax bill for 2023/24 was £8k, he’s made payments on account of £4k so £4k left to pay for 2023/24. Plus POA for 2024/25.

Whatadayyyyyyy · 05/02/2025 22:20

The payments on account are calculated based on last years earnings, they assume you will earn the same. The payments on account due now and in July are for the tax year due to end in April. Once you submit the next tax return if the earnings were more/less the POA's will amend or there will be a balancing payment the following January to cover the difference

Original poster
summerlovingvibes · 05/02/2025 22:21

Ok thanks all.

OP posts:
RayWinstone · 05/02/2025 22:23

I hear you, OP, I don't get it either. My mum tried to explain it to me but it still didn't make sense to me! At what point do you see the benefit for paying ahead?

thankheavensforcalpol · 05/02/2025 22:33

RayWinstone · 05/02/2025 22:23

I hear you, OP, I don't get it either. My mum tried to explain it to me but it still didn't make sense to me! At what point do you see the benefit for paying ahead?

When your earning drops. It’s just a prepayment.

Original poster
summerlovingvibes · 05/02/2025 22:36

@RayWinstone no idea.
I'm still clueless! Haha!

We have been over the sums so many times - he pays the appropriate 40% tax every year, and then pays another 40% on account split over 2 payments. Next year comes and the bill is 40% of his income again. It just never seems to go down!

So.... who knows.

A few years ago we discovered my mum had about £12,000 "on account". She'd just merrily been paying it but then just paying her full tax bill each year. They do not make it clear AT ALL. Would be super nice if they gave you a breakdown somewhere.

Still clueless but too scared not to pay it. We are just crippling ourselves though, so looks like the rental property may end up being sold.

OP posts:
fashionqueen0123 · 05/02/2025 22:37

RayWinstone · 05/02/2025 22:23

I hear you, OP, I don't get it either. My mum tried to explain it to me but it still didn't make sense to me! At what point do you see the benefit for paying ahead?

If you earn less the next year or shut your business down.

fashionqueen0123 · 05/02/2025 22:39

summerlovingvibes · 05/02/2025 22:36

@RayWinstone no idea.
I'm still clueless! Haha!

We have been over the sums so many times - he pays the appropriate 40% tax every year, and then pays another 40% on account split over 2 payments. Next year comes and the bill is 40% of his income again. It just never seems to go down!

So.... who knows.

A few years ago we discovered my mum had about £12,000 "on account". She'd just merrily been paying it but then just paying her full tax bill each year. They do not make it clear AT ALL. Would be super nice if they gave you a breakdown somewhere.

Still clueless but too scared not to pay it. We are just crippling ourselves though, so looks like the rental property may end up being sold.

The calculations show all the payments on account and what’s due etc
So will the self assessment account online.

socialdilemmawhattodo · 05/02/2025 23:00

This can happen if you have other income that is not taxed eg bank interest, self-employment, Can he adjust his tax code to take this into account (if it is regular income)?

PartyOFive · 05/02/2025 23:28

I get this too OP and what I think is confusing is that when you finish your return and they give you a calculation it doesn't factor in the payments on account that you paid last year. BUT, when you look at the actual statement bit a few days later it does seem to take it into account.

So my rough figures are that I pay about 1200 tax a year through self assessment, and the calculation page usually includes the full amount for current year and payment on account for the next tax year so it totals about 1800. But then when I look at the statement page before paying (if I remembered to submit before 31 Jan and can leave a few days before paying) then the statement says I owe around 1200 because it has factored in the previous year's payment on account.

Does that make sense? I agree with you though it's really poorly set out and makes you feel like you're always paying half in advance for the year ahead, but then paying the full amount again when you get to the next year

PrimalLass · 05/02/2025 23:31

There is - or used to be - a way to pay it monthly on a budget plan instead.

Vroomfondleswaistcoat · 05/02/2025 23:36

I'm glad you asked this, OP, because I pay self employed tax and I also cannot work out how I seem to be paying every year twice! And I have to admit that I still can't understand, even though everyone here has tried to explain! My DS is an accountant and I'm going to ask him to show me, with workings, how this works, because I too pay the amount stated, and wonder what happened to the payments I made 'on account' last year - surely it's covered by last year's 'on account'? And then I have to pay next year's on account too, IN ADDITION to the payment for last year...so where did last year's payment go?

I need some one very patient to sit down next to me and point at things as they explain.

Bjorkdidit · 06/02/2025 04:12

You see where it goes in the difference between the tax bill for the year, ie the number that comes up when you submit your self assessment and the amount you actually have to pay which takes a couple of days to appear.

I do DPs tax return and got a horrid shock when it said he owed £11k, as I didn't think it should be anywhere near that much.

However when they calculated the payment, it was just over £4k, which was about what I was expecting and obviously much better.

What you have to remember is that if you do your tax return in January it is for the tax year that ended nearly 10 months ago but they're also getting you to pay towards the tax due for the current tax year as you've already earned most of the money. If you were PAYE you would have already paid most of the tax due by now.

DreamW3aver · 06/02/2025 06:05

Vroomfondleswaistcoat · 05/02/2025 23:36

I'm glad you asked this, OP, because I pay self employed tax and I also cannot work out how I seem to be paying every year twice! And I have to admit that I still can't understand, even though everyone here has tried to explain! My DS is an accountant and I'm going to ask him to show me, with workings, how this works, because I too pay the amount stated, and wonder what happened to the payments I made 'on account' last year - surely it's covered by last year's 'on account'? And then I have to pay next year's on account too, IN ADDITION to the payment for last year...so where did last year's payment go?

I need some one very patient to sit down next to me and point at things as they explain.

Are you sure you're deducting the payments on account when you pay in January? Do you check your online tax account? If you end up owing more than the payments on account you will need to make that up and pay a higher figure for the next year's on account amount.

Guineapiggywiggy · 06/02/2025 07:08

tge payment on account is always going towards the next tax bill so it won’t drop until earnings do.

If you earn PAYE you pay instantly.
If you submit a tax return in Jan 25, and you hadn’t paid on account, the only tax would be 2023-2024 and almost a whole year (2024- Apr - 2025 Jan) would be completely untaxed. They therefore look ahead (based on 23-24) and you pay tax for the ‘current’ tax year that has yet to end.

At Jan 26 they then balance those payments to reflect what actually happened, and add next years (which by then is the current year), and repeat.

Original poster
summerlovingvibes · 06/02/2025 07:31

@Vroomfondleswaistcoat please let me know if your son works manages to explain it to you!

OP posts:
Original poster
summerlovingvibes · 06/02/2025 07:33

@Bjorkdidit sorry, can you explain that again. The bit about seeing a different figure a few days later? Where do you see this figure???
We do the self assessment tax return, we pay what it tells us to and what it asks for on account when we submit the self assessment.
We do it in January every year.
I didn't realise you have to check back a few days later for a revised amount?!

OP posts:
Original poster
summerlovingvibes · 06/02/2025 07:35

@DreamW3aver what do you mean when you ask if another poster is deducting the payments on account? We aren't deducting anything - we are paying what the self assessment calculation asks for.
Are we meant to be doing our own calculation where we deduct what ever he put on account the year before?

I'm so confused still!

We just pay what the self assessment asks for.

OP posts:
mitogoshigg · 06/02/2025 07:39

You can actually submit you self assessment form any time after the 6th April, waiting until January means you owe "on account" for this year too. I submit mine as soon as I get my p60 from my other job.

All "on account" is, is paying approximately for this year, 24/25 tax, something that those of us on paye do each month.

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