📘 Guide to Payments on Account (Self-Assessment)

If you’re self-employed or have significant untaxed income, you may have come across the term “Payments on Account” when dealing with HMRC. This guide will explain:

  • ✅ What Payments on Account are
  • 🧮 How they are calculated
  • 📉 How to reduce them (if eligible)
  • 💰 How and when to pay
  • ⚠️ Common pitfalls and tips

🔍 What Are Payments on Account?

Payments on account are advance payments towards your next year’s tax bill.

HMRC requires them to spread the cost of your tax if your last Self Assessment bill was more than £1,000 and less than 80% of your tax was collected at source (e.g. through PAYE).

They don’t apply if:

  • Your total tax bill is £1,000 or less, or
  • 80% or more of your tax is deducted at source.

🧮 How Are They Calculated?

Payments on account are based on your previous year’s tax bill (excluding student loan repayments and capital gains tax).

You’ll normally make two payments each tax year:

  • First payment: 31 January (same day as your Self Assessment deadline)
  • Second payment: 31 July

Each is 50% of your previous tax bill.

📌 Example:

If your tax bill for 2023/24 was £4,000, your payments on account for 2024/25 will be:

  • £2,000 due on 31 Jan 2025
  • £2,000 due on 31 Jul 2025

Then, in Jan 2026, you’ll:

  • Submit your 2024/25 return
  • Pay any balancing payment (if you owe more)
  • Possibly start new payments on account for 2025/26

📉 Can They Be Reduced?

Yes – if you expect your income or tax liability to be lower than the previous year, you can apply to reduce your payments on account.

🔻 Ways to reduce:

  • Online via your HMRC personal or business tax account
  • Using form SA303
  • Through your Self Assessment tax return

⚠️ Warning: If you reduce your payments too much and end up owing more tax, HMRC will charge interest on the underpaid amount.

💰 How and When to Pay

Payment Deadlines:

  • 1st Payment – 31 January
  • 2nd Payment – 31 July

How to Pay:

  • Online banking / BACS
  • Debit/credit card (fees may apply)
  • Direct Debit
  • Through your HMRC account

👉 Be sure to include your 10-digit UTR (Unique Taxpayer Reference) as a payment reference.

🚫 Common Pitfalls to Avoid

Pitfall Tip
Forgetting about the 31 July payment Set reminders or pay both instalments in January if cash flow allows
Assuming payments apply to your current tax year They go towards next year’s bill
Reducing payments too much without evidence Keep notes, forecasts or an accountant’s advice to support reductions
Ignoring balancing payments Check your actual liability after submitting your return

✅ Key Takeaways

  • Payments on account help spread your tax liability over the year.
  • They apply if your tax bill is over £1,000 and not mostly collected at source.
  • Each payment is 50% of your previous year’s tax (excluding CGT and student loan).
  • You can reduce them if your next tax bill is likely to be lower—but beware of interest if you’re wrong.