The payments on account required for any tax year are calculated by reference to the tax liability for the preceding year. For those taxpayers whose tax liability is relatively constant from year to year this method of calculation ensures that the payments on account required approximate to the additional tax required over and above any tax deducted at source during the year.
However, it is always possible that a taxpayer’s circumstances change significantly from one year to the next. In such circumstances, it is possible that the payments on account, as originally calculated, eventually result in a net over-payment of tax for the year.
In order to avoid over-payments of tax a taxpayer may make a claim to reduce or cancel the payments on account. Claims are required to ensure that HMRC does not commence recovery proceedings to enforce payment for tax that will have to be repaid at the balancing payment date.