Advanced Taxation (UK) · Income tax: the comprehensive computation of taxable income and the income tax liability

Payment of Income Tax, Interest and Penalties for ACCA ATX

Updated 11 October 2026 · Fact-checked

Payments on account are two advance instalments of income tax, each 50% of last year's relevant liability, due 31 January in the tax year and 31 July after it. A balancing payment settles the rest on the next 31 January. Interest runs from the due date at the rate in the tax tables.

Understand Payment of Income Tax, Interest and Penalties

Income tax for a self-assessment taxpayer is not paid in one lump after the year ends. HMRC collects part of it in advance. These advance instalments are payments on account (POAs). They are based on last year's bill, because this year's bill is not yet known.

There are two POAs for each tax year. The first is due on 31 January during the tax year. The second is due on 31 July after the tax year ends. Each is 50% of the relevant amount for the previous year. The relevant amount is the prior year's income tax liability plus Class 4 NIC, less tax deducted at source (for example PAYE) and tax credits on dividends. Capital gains tax is not included.

Once the return is done, you compare the actual liability with the POAs already paid. The difference is the balancing payment, due on 31 January after the tax year. If the POAs were too high, there is a repayment. The first POA for the next year is due on the same 31 January, so one date often carries both.

No POAs are due if the prior year's relevant amount was below £1,000, or if more than 80% of the prior year's income tax liability was met by tax deducted at source. The taxpayer can also claim to reduce POAs if they expect a lower liability. A claim that turns out too low leads to interest, and possibly a penalty.

Interest on underpaid tax runs from the due date to the date of payment. Interest on overpaid tax runs from the date of payment to the date of repayment. The tax tables give the rates. Late filing and late payment also carry penalties. In the exam, you must calculate the dates and amounts and then advise the client on cash flow.

Key rules to remember

Payment on account: Each POA = 50% × [(prior year income tax liability − tax deducted at source) + prior year Class 4 NIC]; Due 31 January in the tax year and 31 July after it. CGT and Class 2 or Class 1 NIC are excluded.
No POAs needed: Relevant amount < £1,000, or tax deducted at source > 80% of prior year income tax liability; If either test is met, the whole liability is paid on the next 31 January.
Balancing payment: Actual relevant amount for the year − POAs paid; Due 31 January after the tax year. A negative result is a repayment.
Filing deadlines: Paper return: 31 October after the tax year. Online return: 31 January after the tax year; The payment date for the balancing payment is the same as the online filing date.
Interest on underpaid tax: Tax unpaid × 8.50% × months late ÷ 12; Rate of 8.50% is given in the tax tables as the assumed rate. Runs from the due date to payment.
Interest on overpaid tax: Tax overpaid × 3.50% × months ÷ 12; Rate of 3.50% is given in the tax tables as the assumed rate. Runs from the payment date to repayment.
Late payment penalties on income tax: 5% of unpaid tax at 30 days late, a further 5% at 6 months and a further 5% at 12 months; These are not in the tax tables, so learn them. They are separate from interest.
Late filing penalties: £100 once late. Then £10 a day for up to 90 days. Then the greater of 5% of tax due or £300 at 6 months and again at 12 months; Not in the tax tables, so learn them. The £100 can apply even if no tax is due.

How to solve Payment of Income Tax, Interest and Penalties questions

Use this order for any question on paying income tax, interest or penalties.

1Identify the tax year and write down the key dates: 31 January in the year, 31 July after, and the next 31 January.
2Find last year's relevant amount: income tax liability less tax deducted at source, plus Class 4 NIC. Leave out CGT.
3Apply the two exclusion tests (below £1,000, or more than 80% deducted at source). If either is met, there are no POAs.
4Compute each POA as 50% of the relevant amount and state both due dates.
5Compute the current year's relevant amount, subtract the POAs paid, and state the balancing payment or repayment and its date. Add any CGT due on the same date separately.
6If payments are late, calculate interest from the due date to the actual payment date using the given rate, rounded to the nearest £.
7Add late filing or late payment penalties only if the question gives the dates and asks for them. Show the percentage and the base each time.
8Finish with a short comment on cash flow or advice, such as a claim to reduce POAs, as the requirement asks.

Quickest way: Date, base, rate: the three-line check

When to use it: Use it when a question gives a few numbers and asks for the amount due on each date, or the interest on a late payment.

Write the relevant amount for last year in one line, then halve it for each POA.
Write the current year's relevant amount, subtract the POAs, and label the result with its 31 January date.
For interest, write amount × rate × months ÷ 12 on a single line and round to the nearest £.
Set the next year's POAs as half of the current year's relevant amount. State them next to the balancing payment.

Common mistakes in Payment of Income Tax, Interest and Penalties

Including CGT in the POA base
Both are paid on 31 January, so it feels like one tax bill.
Fix: Base POAs only on income tax (net of deduction at source) plus Class 4 NIC. Add CGT separately to the balancing payment.
Forgetting to deduct tax taken at source
Students use the total liability from the computation.
Fix: Subtract PAYE and other tax deducted at source before halving. Test the 80% rule as well.
Using the wrong due dates for the second POA
Students assume both POAs fall in the same tax year.
Fix: The first is 31 January in the tax year. The second is 31 July after the tax year ends. The balancing payment is the following 31 January.
Using the official rate of interest for late tax
The tax tables show 3.75% official rate, 8.50% underpaid and 3.50% overpaid in one table.
Fix: The official rate is for benefits in kind. Use 8.50% for underpaid tax and 3.50% for overpaid tax.
Starting interest from the wrong date
Students count from the filing date or the date of the return.
Fix: Interest on underpaid tax runs from the original due date of each payment, including a POA that was reduced too far, to the actual payment date.
Treating penalties and interest as the same thing
Both arise from paying late.
Fix: Interest compensates HMRC for the delay. Penalties are percentages of the unpaid tax and are calculated separately. Show both.

Worked examples

Example 1

Priya is self-employed. For 2024/25 her income tax liability was £18,000, of which £3,000 was deducted at source, and her Class 4 NIC was £2,000. For 2025/26 her income tax liability is £26,000, of which £4,000 was deducted at source, and her Class 4 NIC is £2,400. She has no CGT. Calculate the payments on account for 2025/26, the balancing payment, and the POAs for 2026/27, with dates.

Show the solution

Relevant amount for 2024/25 = (£18,000 − £3,000) + £2,000 = £17,000.
Test the exclusions: £17,000 is over £1,000, and £3,000 ÷ £18,000 = 16.7%, which is under 80%. POAs are due.
Each POA for 2025/26 = 50% × £17,000 = £8,500. Due 31 January 2026 and 31 July 2026.
Relevant amount for 2025/26 = (£26,000 − £4,000) + £2,400 = £24,400.
Balancing payment = £24,400 − £17,000 = £7,400, due 31 January 2027.
POAs for 2026/27 = 50% × £24,400 = £12,200 each. The first is due 31 January 2027, so £7,400 + £12,200 = £19,600 is payable on that date. The second is due 31 July 2027.

Answer: 2025/26 POAs: £8,500 on 31 January 2026 and £8,500 on 31 July 2026. Balancing payment: £7,400 on 31 January 2027. 2026/27 POAs: £12,200 each on 31 January 2027 and 31 July 2027. Total due on 31 January 2027: £19,600.

Example 2

Priya (above) pays her second 2025/26 POA of £8,500 three months late, on 31 October 2026. Separately, a different taxpayer, Marcus, overpaid income tax of £2,000, which was repaid six months after he paid it. Calculate the interest for each, using the rates in the tax tables, and state any late payment penalty on Priya's POA.

Show the solution

Priya's POA was due 31 July 2026 and was paid on 31 October 2026. That is 3 months late.
Interest on underpaid tax = £8,500 × 8.50% × 3 ÷ 12 = £180.63, which rounds to £181.
Late payment penalty: 5% is charged only if tax is still unpaid 30 days after the balancing payment date (31 January). It does not apply to a late POA, so no penalty arises here.
Marcus's interest on overpaid tax = £2,000 × 3.50% × 6 ÷ 12 = £35.
State that the underpaid rate (8.50%) is higher than the overpaid rate (3.50%), so paying late costs more than the interest HMRC pays on repayments.

Answer: Priya's interest: £181. No penalty on the late POA. Marcus receives interest of £35.

Exam tips

Learn the dates as a timeline: 31 October paper filing, 31 January online filing and payment, 31 July second POA. Write them in the answer next to each amount.
Read whether the question gives tax deducted at source. That changes the POA base and the 80% test.
Take 8.50% and 3.50% from the tax tables. Do not use the official rate of 3.75% unless the question is about a beneficial loan.
In longer case questions, link this topic to cash flow. Advise on a claim to reduce POAs only if a lower liability is expected, and warn about interest if the claim proves too low.
Show each calculation on one line with the base, the rate and the time. Method marks are available even if the base is wrong.

Practice questions from Income tax: the comprehensive computation of taxable income and the income tax liability

Payment of Income Tax, Interest and Penalties in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Payment of Income Tax, Interest and Penalties: frequently asked questions

How are payments on account calculated for ATX-UK?

Each payment is 50% of last year's income tax liability, less tax deducted at source, plus Class 4 NIC. CGT is excluded. They are due on 31 January in the tax year and 31 July after it.

When are no payments on account needed?

No payments are due if last year's relevant amount was below £1,000, or if more than 80% of last year's income tax liability was deducted at source. In that case the whole liability is paid on the next 31 January.

What interest rates do I use for late paid income tax?

Use the assumed rates in the tax tables given in the exam: 8.50% on underpaid tax and 3.50% on overpaid tax. Interest on underpaid tax runs from the due date to the payment date.

What is the deadline for filing a self-assessment return?

A paper return is due by 31 October after the tax year. An online return is due by 31 January after the tax year. The balancing payment is also due on 31 January.