Payments on Account are advance payments toward your next years Self Assessment Tax Liability.
They are based on your Previous Year's Tax Liability. There will be 50% due in January and 50% due in July.
Payments on Account are due if your Tax Liability exceeds £1,000 and it is more than 20% of your Tax Deducted at source through PAYE.
Example....
If your 2022/23 Tax Liability is £3,000.
You will have Payments on Account of £1,500 due in January 2024 and £1,500 due in July 2024. This will represent as a payment toward your 2023/24 Tax Liability.
If your actual tax liability is £2,800 for 2023/24, you would be due a Repayment of £200. You would be required to make Payments on Account of £1,400 in January 2025 and July 2025 with a £2,800 Tax Liability.
If however your tax liability for 2023/24 in the above example is £3,200, you would be due to make a Tax Payment of £200. You would be required to make Payments on Account of £1,600 in January 2025 and July 2025 with a £3,200 Tax Liability.
Reducing Payments on Account
Tax liabilities fluctuate, if you feel your Tax Liability in the next Tax Year will be lower than the calculated Payments on Account. You can make a request to reduce your Payments on Account on your Tax Return or by post using the form SA303.
Be careful though, if you reduce your Payments on Account and your Tax Liability is more than you have estimated. HMRC will charge you late payment interest on the reduction on Payments on Account.
Refund for Overpayments of Payments on Account
This can be requested and received via your Self Assessment Personal Tax Return.