on account

I would appreciate your advice and guidance on the 2 questions (A & B) below. I have set out the facts in points 1 to 9, but can of course provide more information if needed. 1. I am UK resident for tax purposes. 2. I have never been self employed. 3. I am a pensioner receiving state pension. 4. I also receive an occupational pension from the Isle of Man Government. 5. My tax code is only applied to very small UK private pension (less than £200 per year). 6. My tax code cannot be applied to my Isle of Man pension nor to my state pension, therefore 80% of tax due cannot be collected this way (even though tax due is less than £3000). 7. My last year’s (2021-22) UK self assessment tax due was circa £950. 8. This year’s (2022-23) initial UK self assessment calculation has tax due circa £1050. 9. The calculation also states I have to pay ‘on account’ 50% more along with £1050 by 31 January 2024 and a further 50% of the £1050 by 31 July 2024. Question A. Is this demand for ‘on account’ tax payment correct for a non-employed, non self-employed retired pensioner, not least in a cost-of-living crisis? Question B. If the calculation is correct, will this ‘on account’ tax demand continue year on year, bearing in mind the UK tax system means my state pension is not taxed at source and the 1955 UK/Isle of Man double-taxation treaty changed in 2013 (effective 2014) which are in place, are not my fault? Yours sincerely

Hi Bigman2023

The system automatically generates payments on account when there is a balancing payment of over £1000 and less than 80% of the tax due for year has been collected at source.
Based on your scenario, your UK private pension is not high enough to collect 80% of your total tax due for the year.
The payments on account are correctly charged as you will have a charge each year of roughly the same amount due to the personal allowances remaining at the same level when your income will increase. 

Understand your Self Assessment tax bill

Thank you. 

POA may well continue given the expected freeze of the Personal Allowance at the same time as you are getting triple lock increases in the State Pension. But having paid POA means that when you come to file your 2023-24 tax return your Balancing Payment will be less as you have made those POA. And don't forget if you had a larger source of UK pension where PAYE is operated you would be paying more tax under PAYE from April 2023 (for the 2023-24). As it stands the first POA for 2023-24 isn't due until 31 January 2024 so you have a significant cashflow advantage over someone whose tax is paid entirely under PAYE.

Hello, many thanks for your replies, you are confirming what I thought having search the issue. I wanted clarification because, unknown to you, I was charged 'on account' in the past with similar income sources and it wasn't until I challenged the online decision on the phone I was told I should not have been charged 'on account', hence the need for clarification.