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Your end of year tax bill may not be the same as the tax calculated on your self assessment. This is because it may include an amount which is owed from a previous year, known as ‘balancing payments’ or ‘payments on account’ for the present tax year.

Payments on account are two payments made during a year, one by the end of January for the current tax year, and the second by the end of July, which will fall in the next tax year. The tax estimated to be owed for the current tax year is based on the amount which was owed in the previous tax year. The amount is split into two payments.

However, if your liability for the year is below £1,000, you can make just one payment on 31st January following the current tax year. For instance, if your liability was below £1,000 in 2010-2011 you won’t be required to make payments on account for 2011-2012. Instead you will pay the full amount of tax due by 31st January 2013. If 80 percent of your liability was taxed at source, you don’t have to make payments on account.

If you believe that your total income for this year will end up being less than last year’s income, you can request for payments on account to be reduced. You complete a form SA303 which is submitted to HMRC to do this. However, if the actual tax due is higher than you thought, HMRC may charge you a fine. If you apply for reduced payments on account and then realise at a later date that your income will be higher, inform HMRC immediately.

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