Quick answer
After each quarterly update, HMRC can show you an estimate of the Income Tax and National Insurance you’re likely to owe for the year, based on what you’ve sent so far. It isn’t a bill. Your actual liability is settled when you submit your final declaration.
What it’s based on
The estimate uses the figures in your quarterly updates. It can’t know about income you haven’t reported yet, such as dividends, savings interest or a job, until you add them in your final declaration.
How to use it
Set money aside each quarter based on the estimate.
Spot a big tax bill early, rather than in January.
Check whether your payments on account look too high or too low.
Why it might be wrong
Seasonal income that hasn’t arrived yet
Other income you’ll only add at year end
Year-end adjustments such as capital allowances
See how payments on account work under MTD.