Payments on Account in Self Assessment

Payments on Account are advance payments towards an individual’s next Self Assessment tax bill. Many taxpayers are surprised by these payments because they effectively require part of the following year’s tax to be paid in advance.

Payments on Account apply when a taxpayer’s Self Assessment bill exceeds £1,000, and less than 80% of the tax due has already been collected through PAYE.

Under this system, HMRC requires taxpayers to make two advance payments, each equal to 50% of the previous year’s tax bill.

The payments are due on:

• 31 January during the tax year

• 31 July following the tax year

For example, if a taxpayer’s bill for the 2024/25 tax year is £10,000, HMRC may require two payments on account of £5,000 each towards the 2025/26 tax liability.

This can create a situation where taxpayers must pay 150% of their usual tax bill in January, because the payment includes both the balancing payment for the previous year and the first payment on account for the following year.

Payments on Account commonly affect:

• Sole traders

• Self-employed consultants

• Landlords

• Company directors receiving dividend income

If a taxpayer believes their income will be lower in the following year, they may apply to reduce their Payments on Account. However, if the estimate is too low, HMRC may charge interest on the difference.

Planning ahead for these payments is essential. Many self-employed individuals set aside a percentage of their income throughout the year to ensure sufficient funds are available when tax deadlines arrive.

Understanding how Payments on Account work helps taxpayers avoid unexpected financial pressure and ensures they remain compliant with Self Assessment requirements.