The short version: A balancing payment is the extra bit you might owe (or be owed) when your actual tax bill doesn’t match what you paid in advance through Payments on Account.
What’s Payment on Account?
If you’re self employed and owe more than £1,000 in tax, HMRC makes you pay in advance. You pay half by 31st January and half by 31st July, based on last year’s bill. But if this year turns out differently, you’ll need to settle up.
How the balancing payment works
You earned £30,000 last year. HMRC bases your advance payments on that. But this year you earned £40,000. Come January, you’ll owe extra to cover the difference. That’s your balancing payment.
It works the other way too. If you earned less than expected, HMRC refunds you.
First year shock
Your first Self Assessment bill can feel brutal. You pay 100% of last year’s tax plus 50% towards this year. That’s 150% in one go. It evens out eventually, but it’s worth budgeting for.
Not sure what you’ll owe? Let us take a look and help you plan ahead.
