"Money on account" HMRC question

[summerlovingvibes]

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!

Thanks @BulbousFrog

Never knew there was an app so will download it and have a look as a few people have said it's easier to see that way.

You might find that when you look back at previous years you have significantly overpaid and are due a refund. In your situation I would phone HMRC and sit there on hold until you can speak to someone.

So why don't HMRC automatically refund any overpayment? They know where we are, after all...

it generally is the amount you owe though. because you also have to pay part of the current year's tax

Also, why can't you opt to pay them automatically? You have to set it up each time a payment is due, as far as I can tell.

Not for me, the amount I see initially is the full amount due for the year that's ended plus the first POA

Then a few days later I see the amount to actually pay and they aren't the same.

Mathematically I suppose there might be a way for them to be the same but thats unlikely

I thought you could, they take payments by direct debit don't they?

You have to set it up each time though and it only takes one payment. You can't have one set up that takes the amount due every six months automatically.

I suppose it's because it's a large amount of money that people don't generally keep in their current account and they'd have endless people complaining that they've been robbed of their mortgage money or whatever.

DP puts his tax money in an account that allows DDs and pays interest, so ideally would just pay from there without having to remember to set it up each time.

Exactly.

OP Id also advise doing the tax return in April/May. There is no need to wait until January and then being close to the deadline etc if you do have questions. You also then will see immediately how much you’ll be owing.

I know this is what I ought to do. It's what my accountant son nags me to do. But...well, life, and January is a long way away and... I don't get round to it.

But none of this explains why it's so difficult to understand a tax return and payment! I was so glad OP started this thread because I now know I'm not the only person who struggles to understand. I work out roughly during the year how much I'm going to owe, so I have the money, but I just can't work out how every year isn't automatically already paid when I make one payment on account in January (as well as paying my 'tax due') and another payment on account in July and yet, when those two payments total just about what tax is due - I am STILL told I owe the tax, plus payment on account for NEXT year...

I'm sure it's me, but it's clearly not ONLY me, and maybe HMRC could be just a touch more transparent (or make their online account easier to understand)?

If I was an accountant, I'd have a price for doing work, then I'd offer a discount for doing that work between April and June and bump my rates up by the same amount for anyone who wants it doing between November and January.

I know a couple of accountants and every year they start their annual 'dreaded tax season' complaints at around Christmas.

Yes this annoys me immensely especially because on the SA form they ask for bank details on case it a refund is needed.

I just can't work out how every year isn't automatically already paid when I make one payment on account in January (as well as paying my 'tax due') and another payment on account in July and yet, when those two payments total just about what tax is due - I am STILL told I owe the tax, plus payment on account for NEXT year

Because your tax for 2023/4 is covered by the payment on account you made in Jan 2024, July 2024 and the January 2025 balancing payment.

Right now we're 10 months into the 2024/5 tax year so you need to start paying some tax towards it, so you've done this by paying a payment on account in January, will pay another in July and then there will be a hopefully small balancing payment in January 2026, at which time you'll also pay the payment on account toward the tax you pay for the 2025/6 tax year.

And the cycle goes on until you stop being self employed, where you can ask to reduce your payment on account if you know you won't owe that much in tax - which you will because you're 10 months into the tax year for which it relates.

But it says on the page that it hasn't taken into account any payments on account made and that it takes 72 hours to update. It is in bold lettering and quitevhard to miss uf you are reading everything on the page. Are you just going in and paying what the initial figure shows after you click submit?
The initial figure shown will be different until the 72 hrs have passed and your return has been processed. You then go back in and it will tell you what you need to pay by 31st Jan. This figure will be the tax you owe minus the payments on account that you have paid the previous Jan and July. The amount left to pay will include a payment on account for next year. It also shows what you need to pay as payment on account by 31st July as the second payment on account.
You can go in at any time you want and make payments throughout the year manually or set up a dd.

You aren’t paying ahead though. You are paying tax on income you have already had, just like people on paye do. Otherwise you’d be paying tax a year late

Yes, but it does say in the page that it hasn't taken into account the previous payments made etc.
Most of these HMRC issues could be avoided if people actually read the information on the page rather than just clicking past and carrying on to make the payment.

You have to tick a box stating where you want the overpayment made to. It will sometimes just sit in you account until you do. After a certain length of time they will send a cheque if you haven't stated where you want the money paid.

Log on to your government gateway account.
We have an accountant who deducts our payments on account and tells us the net amount due typically and what we need to pay in account in July.
It looks like if you do a self assessment it takes a day or 2 to apply the payment on account. I think you need to look at the government gateway account and see if a refund is due?

But it isn't a 'small balancing payment' in January! They tell me I'm due to pay the full amount that I have calculated and that they also have calculated is due on my earnings. I could understand it if HMRC said 'ah, you owe us £3,000 in tax on your earnings, but as you paid £1,000 on account in January last year and £1,000 on account in July, you only owe us £1,000.' But it doesn't. It says 'you owe us £3,000'. So I pay that. AND ALSO the £1,000 that they ask for on account for next year.

So where did my previous 'on account' payments go?

I'm sure this is as annoying as hell for everyone who understands and is sorted, but I'm immensely reassured that it's not just me who doesn'!

True of course that some questions could be avoided if everyone read all the text, but also I there are places on the HMRC system where even the explanations aren't clear so there could be improvements in how they communicate with the taxpayers.

I do sympathise with people who assume (as I did at first) that the self assessment calculation you receive when you submit the form would take into account your balance at that point. They know some stuff automatically (like your student loan plan) so people assume it's all linked.

Perhaps if any HMRC web or UX people are reading they could consider making a more prominent bit on the calculation page which directs you to check your balance statement to confirm what you should pay finds a way to factor the existing balance into the SA calculation page.

(caveating that by saying I can't remember what's on the calculation page exactly, it may be very clear but just not prominent?)

But it tells you it doesn't include your payments on account. If you logged back in 72 hours later when it's been processed, you'll see.

The issue comes from people leaving it until end of January when they have to file and pay at the same time.

But that is what happens, have you read the posts above, are you checking the amount you actually need to pay rather than paying the first amount they tell you?

There's no helping some people. You can tell by the lack of reading of answers that they won't be reading their tax return summary either.

I agree. It is the same when anyone posts about pensions etc. They aren't actually reading the answers or checking the links people put up to sites where they would get the information.