Please explain to me, in simple language, how self-assessment tax 'on account' works....

[MoneyMuppet]

DP's just been landed with a £25K tax bill from his self-assessment. It's such a big bill because he needs (I think) to pay off some tax from last year and then some in advance (on account). I

I don't get it. Is this right:
You pay your tax in advance and then whatever you actually should pay over that period is just deducted from that pot (i.e. what you've paid on account)?

Do you just have to wait until you stop doing self-assessment (so perhaps when you retire) to get the over-payment back?

I've looked on HMRC website but I can't make head nor tits of it.

Thanks for any insights anyone has!

If they did his personal tax work they would be engaged by him personally, bill him personally, and be paid by him personally.

He would have a separate letter of engagement (contract) with them.

He is a separate legal person from the company, it would all be separate unless he chose to make it complicated by putting it through the company - which he's already said he doesn't want to do.

If it's a big firm (regional? national?) their fees will be higher so maybe he's just penny pinching.

That makes no sense, assuming he's a director, he can only be paid by a mix of wages and/or dividends, and if you say he's not getting dividends, it can only be wages and they should be taxed correctly under PAYE. HMRC don't allow directors to be paid "consultancy" fees from their limited company as contractors/consultants as self employed income.

Without knowing all the facts the current way of paying himself could fall under IR35. It just sounds overly complicated and a bit of a bodge job tbh and he’s either going to end up owing penalties and interest if the tax is wrong, or potentially paying more tax than he could do with a decent accountant and some small changes. I’d really recommend changing accountants.

I agree.

This is why I went back to a full time job, I literally could afford to pay tax up front on money I hadn't earned.

All outgoings went up. Energy tripled, mortgage went up five fold !

We are an Llp
Tax is paid on profit not drawings

Even with POAs you never pay tax in advance of earning it.

OP isn't talking about an LLP. In different posts, she's said company, shareholders and dividends so is clearly talking about a limited company. Unless the OPs partner and his accountant don't understand that either.

Actually, you have earned the money on it. The first POA is due in January, so 9 months through the tax year. And you are only paying half. The second is due in July, 4 months after you have “earned the money”.

People on PAYE pay their tax instantly. It’s actually a good deal for self employed people, when you look at it like that.

Thanks for all your comments - things are much clearer

I absolutely agree that he should switch accountants but its nothing to do with me so whatever. As I said, its his time and energy he's wasting. The accounts the company uses are a big regional organisation, they're very proper!

@Badbadbunny No, he's not an employee. He doesn't take dividends. He does two days a month as a consultant for the company and gets paid for that. My understanding is that he's able to do so because he also has a full-time job outside of the company which means he doesn't have set duties, activities or a contract as a director. Something like that - I have no idea, his lawyers didn't forsee any problems with that way of doing things.