Reduction in Payments on Account - Client Authorisation Template
Client risk disclosure and authorisation for reducing payments on account.
A client-facing risk disclosure and authorisation template for use where a client instructs you to reduce their Self Assessment payments on account. It explains what payments on account are, the grounds on which HMRC permits a reduction, the risks the client takes on, and the limits of your firm's responsibility.
How to use this template: merge fields shown in square brackets are replaced automatically when the document is generated for a client. Review and tailor the wording to your own firm before use.
Client Risk Disclosure and Acknowledgement of Responsibility
Client Details
- Full Name: [Name]
- UTR Number: [TaxRef:PersonalUTR]
- Address: [HomeAddress]
- Tax Year Affected: [Tax Year]
- Date of Request: [CurrentDate]
1. What Are Payments on Account?
Payments on account are advance payments towards your Self Assessment tax bill for the current tax year. HMRC requires these payments when your previous year's tax liability exceeded £1,000 and less than 80% of that tax was collected at source, for example through PAYE. Each payment on account is set at 50% of your previous year's tax liability and falls due on 31 January and 31 July each year.
You have asked us to submit a claim to HMRC to reduce your payments on account below the amounts that would otherwise be due. This document sets out the risks associated with that request and the basis on which we will act on your instructions.
2. Grounds for Reduction
HMRC permits a reduction to payments on account where you have reasonable grounds to believe your tax liability for the current year will be lower than the previous year. Acceptable grounds include a reduction in income, a change in your business activity, retirement, or other circumstances that will genuinely reduce your taxable income. We will submit your reduction request on the basis of the information and instructions you have provided to us.
3. Risks of Reducing Payments on Account
Reducing your payments on account is not without risk. You should read this section carefully before confirming your instruction.
Interest Charges
If your actual tax liability for the current year turns out to be higher than the reduced payments you have made, HMRC will charge interest on the underpaid amount. Interest runs from the original due dates (31 January and 31 July) and is not tax-deductible. The current HMRC interest rate on late payment is linked to the Bank of England base rate and is reviewed regularly.
Larger Balancing Payment
Any shortfall between the reduced payments on account and your actual tax liability will become due as a balancing payment on the following 31 January. This can result in a significantly larger-than-expected tax payment at that time, particularly if your income during the year is higher than you anticipated.
Potential Penalty Exposure
HMRC may charge a penalty if it considers that a reduction was made without reasonable grounds. While penalties are uncommon where clients act in good faith, they remain a possibility if the reduction is found to be excessive or without proper basis.
No Guarantee of Final Position
Submitting a reduction claim does not guarantee that your final tax bill will be lower. If your income, gains, or other taxable receipts during the year are higher than you have estimated, the reduction may prove insufficient and a balancing payment will be required.
Cash Flow Planning
Reducing your payments on account frees up cash in the short term but may create a larger cash commitment in January of the following year. We strongly recommend that you set aside funds equivalent to your estimated tax liability throughout the year to avoid a cash flow shortfall when the balancing payment falls due.
4. Our Role and the Limits of Our Responsibility
We will act on your written instruction to reduce your payments on account based on the information you have provided. We will make the reduction claim to HMRC on your behalf in good faith and in accordance with your stated reasons.
We are not responsible for any interest, penalties, or additional tax arising as a result of your payments on account being set at a level that proves insufficient once your final tax position is established. The accuracy of any estimate of your current year income or liability is your responsibility. We rely entirely on the information you provide to us and are not required to independently verify your income position.
If your circumstances change during the year in a way that is likely to increase your tax liability, you have an obligation to inform us promptly so that we can advise you accordingly and, if appropriate, reinstate payments on account or make alternative arrangements.
Important Notice HMRC interest on underpaid payments on account accrues automatically and cannot be waived. By signing this document you confirm that you understand the risks set out above and that you accept full responsibility for any interest, penalties, or additional tax that may arise as a direct result of your instruction to reduce your payments on account. You further confirm that your accountant and their firm have no liability in connection with this reduction or its consequences.
5. Client Declaration and Acknowledgement
By E-signing this document, I confirm and agree to all of the following:
1. I have requested that my payments on account for the tax year shown above be reduced, and I understand that this reduction is based solely on my own assessment of my likely tax position for the current year.
2. I understand that if my actual tax liability for the current year exceeds the reduced payments I have made, HMRC will charge interest on the difference from the original due dates, and I accept sole responsibility for that interest.
3. I understand that any shortfall will form part of my balancing payment due on 31 January following the end of the tax year, which may result in a significantly larger payment than I would otherwise have faced.
4. I acknowledge that my accountant and their firm have advised me of the risks set out in this document and have acted solely on my instruction.
5. I confirm that my accountant and their firm bear no responsibility or liability whatsoever for any interest charges, penalties, or additional tax arising as a direct or indirect result of this reduction request.
6. I confirm that if my financial circumstances change materially during the tax year, I will notify my accountant promptly so that appropriate advice can be provided.