What are payments on account?
Payments on account explained
Payments on account are advance payments you make twice a year towards your Self Assessment tax bill.
HMRC estimates how much tax you owe for the upcoming year based on your previous year’s tax bill. You pay this estimate over 2 instalment dates for the purpose of spreading out your tax payments throughout the year.
If your payments on account don’t cover your total tax bill for the year, you must make an additional ‘balancing payment’.
The 2 deadlines for paying your Self Assessment tax are:
Midnight on 31st January
(the same date your Self Assessment tax return is due) for any tax you owe for the previous tax year (a balancing payment) and your first payment on account for the upcoming tax year.
Midnight on 31st July
for your second payment on account for the upcoming tax year.
As a Self Assessment taxpayer, you’re required to make payments on account to HMRC unless you fall under one of the following 2 categories:
- Your last Self Assessment tax bill was less than £1,000.
- 80% or more of your tax was deducted at source through PAYE.
There’s no need to stress,
even if this is all new to you.
If you are worried about these changes, do get in touch as we can help talk through what you need to do.
Example
Say you became self-employed in May 2023 and completed your first Self Assessment return for the 2023/24 tax year. Your tax due for the year came to £2,500.
Because this is above the £1,000 tax due threshold, you will need to pay payments on account towards your next tax bill (2024/25).
Therefore, in addition to the £2,500 tax payment owed for the 2023/24 tax year, your tax bill will include your first payment on account for the 2024/25 tax year of £1,250 (50% of your 2023/24 tax bill).
So you pay a total of £3,750 on 31 January 2025.
Your second payment on account of £1,250 for the 2024/25 tax year is made on 31 July 2025.
You have now paid £2,500 towards your 2024/25 tax bill.
If, when you submit your Self Assessment tax return for the 2024/25 year, your tax bill comes to £2,000, you’ll be owed a refund of £500 (the difference between the £2,500 you have paid on account and your actual tax bill). Your next payment on account for the following tax year would be £1,000, due 31 January 2026, and £1,000 due 31 July 2026.
If, when you submit your Self Assessment tax return for the 2024/25 year, your tax bill comes to £3,000, you’ll owe HMRC £500 (the difference between the £2,500 you have paid on account and your actual tax bill). You would then pay the balancing payment of £500 and your next payment on account for the following tax year would be £1,000, due 31 January 2026. Total due 31 January 2026 would be £1,500, and £1,500 due 31 July 2026.
