Payments on Account Explained

If you're a sole trader, landlord, or earn income outside PAYE, you may be asked to make 'payments on account' — advance payments towards your next tax bill. These can catch people by surprise, especially in your second year of Self Assessment, when you're paying for both last year and next year at the same time. This article explains how the system works, when payments are due, and what to do if your income has fallen.

What are payments on account?

Payments on account are advance payments towards your next Self Assessment tax bill, including Class 4 National Insurance if you're self-employed. They're designed to spread the cost of your tax across the year by splitting it into two instalments, rather than paying everything in one go.

Each payment is half of your previous year's tax bill. You pay these on top of any balancing payment you owe for the year just finished.

When do you need to make payments on account?

You must make payments on account unless either:

• The amount of tax you owed last year was less than £1,000
• Last year you paid more than 80% of the tax you owed outside of Self Assessment (for example through PAYE or because your bank had already deducted tax on savings interest)

If you meet one of these conditions, you simply pay your full tax bill in one payment by 31 January. Otherwise, you'll need to make two payments on account.

When are payments on account due?

The two payments are due by midnight on:

• 31 January (during the tax year you're paying for)
• 31 July (during the tax year you're paying for)

Your Self Assessment statement or online account will show you how much each payment is.

How payments on account are calculated

Payments on account are based on your previous year's tax bill. Each payment is half of the total tax you owed the year before.

If you actually earn more than the previous year, you'll still have tax to pay on top of your payments on account. This is called a 'balancing payment', which is due by 31 January and may also include any capital gains tax or student loan repayments.

If you earn less than the previous year, you may be able to claim a tax refund.

Example: If you made payments on account last year

Your bill for the 2023 to 2024 tax year is £3,000.

Based on your 2022 to 2023 earnings, you made 2 payments of £900 each (£1,800 in total) on 31 January 2024 and 31 July 2024 towards this bill.

Because your payments on account didn't cover the full amount, you have a balancing payment to make.

Your amount due by midnight on 31 January 2025 is:

• Balancing payment of £1,200 for 2023 to 2024 (£3,000 minus £1,800)
• First payment on account of £1,500 (half your 2023 to 2024 tax bill) towards your 2024 to 2025 bill

Total due: £2,700

You then make a second payment on account of £1,500 on 31 July 2025.

If your 2024 to 2025 tax bill is more than £3,000 (the total of your two payments), you'll need to make another balancing payment by 31 January 2026.

Example: If you didn't make payments on account last year

If this is your first year making payments on account (for example, because you've just become self-employed), the 31 January payment can be particularly large.

Your bill for the 2023 to 2024 tax year is £3,000.

The total tax to pay by midnight on 31 January 2025 would be £4,500.

This includes:

• Your £3,000 tax bill for 2023 to 2024
• First payment on account of £1,500 (half your 2023 to 2024 tax bill) towards your 2024 to 2025 bill

You then make a second payment on account of £1,500 on 31 July 2025.

How to reduce your payments on account

You can apply to reduce your payments on account if:

• Your business profits or other income has gone down
• The tax relief you're entitled to has gone up
• Tax deducted at source is more than the previous tax year

You must claim by 31 January after the end of the tax year. For example, by 31 January 2026 for the 2024 to 2025 tax year.

To apply, you can either use HMRC's online service or fill in form SA303 on screen, print it, and post it to HMRC.

You'll need your Self Assessment Unique Tax Reference (UTR) or employer reference, and the name and address of your HMRC office (found on your Self Assessment statement).

Important: If you reduce your payments on account but end up owing more tax than you paid, you may face interest charges on the underpaid amount. Only reduce your payments if you're confident your income has genuinely fallen.

What happens if you can't pay?

If you're struggling to pay your Self Assessment bill by the deadline, contact HMRC as soon as possible to discuss payment options. Missing the 31 January deadline will result in penalties and interest charges.

Sources

• Understand your Self Assessment tax bill
• Claim to reduce payments on account

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.