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What is a Balancing Payment for Self Assessment?

JAFA Accountancy

Updated: 5 days ago


calculator with pen on piece of paper. calculator required to calculate the balancing payment.

Understanding balancing payments is important when managing your own taxes through self-assessment. These payments ensure you settle any differences between what you've paid in advance and your final tax bill. Let’s learn about it in detail in this article!


What are Payments on Account? 

Before understanding balancing payment meaning, it’s important for you to learn about payments on account. 


“Payments on Account” are advance payments toward your Income Tax and Class 4 National Insurance bill in the UK. They're required if your tax bill exceeds £1,000 and less than 80% of your tax is collected at source (such as through PAYE).


When to Pay: You will need to make two installments - January 31 (during the tax year) and July 31 (after the tax year).


How Much: Each payment is half of your previous year's tax bill.


Adjustments: If you owe more after filing your tax return, you’ll make a balancing payment by January 31 of the following year. If you’ve overpaid, you’ll receive a refund.


Exclusions: Payments on account don’t cover Capital Gains Tax or student loan repayments.


What is a Balancing Payment According to HMRC?

Let’s say, your advance payments (payments on account) don't fully cover your tax liability for a given tax year, this is when you will have to make a balancing payment for the amount you owe HM Revenue and Customs (HMRC). 


This explains a commonly asked question - why do I have to pay a balancing payment?


This payment ensures you've paid the correct amount of tax based on your actual income. It's due by 31 January following the end of the tax year. 


Example of Payments on Account and Balancing Payment

To help you understand the concepts better, here’s an example: 


  1. For instance, your tax bill for 2023-24 is £2,000.


Payments on account are based on your last tax bill and are split into two installments of £1,000 each (50% of £2,000).


First payment due: January 31, 2025.


Second payment due: July 31, 2025.


  1. If the actual bill for 2024-25 is higher (such as £2,500):


You owe a "balancing payment" of £500 (the difference between £2,500 and £2,000 already paid).


Due date for the balancing payment: January 31, 2026.



Remember, if your payments on account exceed your actual tax bill, HMRC will issue a refund or adjust the overpayment against future bills.


Is Payment on Account Compulsory for Self Assessment?


Yes, payments on account are compulsory for Self Assessment taxpayers if:


  1. Your tax bill from the previous year exceeds £1,000, and

  2. Less than 80% of your tax is collected at source (e.g., through PAYE).


If both conditions are met, payments on account are automatically applied to your tax account by HMRC. However, if you expect your income to be lower in the following year, you can apply to reduce the amount. Be aware that underpaying may lead to interest charges on the unpaid tax.


If neither of the above conditions applies, payments on account will not be compulsory for you.


How to Check Payments on Account?


Here are two ways to check your payments on account:


  • Online: Log in to your HMRC account, go to "Self Assessment", and view your tax summary.

  • Paper: Refer to your SA302 or tax bill sent by HMRC, which lists your payments.


How JAFA Can Help

Are you struggling with your Self Assessment or unsure about balancing payments? Book a FREE discovery call with JAFA, trusted accountants in Birmingham, and let us help you navigate the UK tax system with ease. 

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