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Understanding Self-Assessment Payments on Account

Payments on account is one of the most commonly misunderstood elements of Self-Assessment, this is especially true for those new to self-employment. 

Originally devised as a way of helping self-employed people spread the cost of their tax bill, it can result in increased financial hardship for those who are already having difficulty paying.

What is payment on account?

Payments on account are tax payments made twice a year in advance by those people who need to complete a tax return, these include the self-employed, landlords and pensioners with additional income streams.

The idea is to spread the cost of the year’s tax. They're calculated based on your previous year’s tax bill and are due to be paid in January and July. The payment on account can be thought of as a way of paying off some of your next tax bill in advance. The first instalment is due on 31 January (the same day as your 'balancing payment', which clears your tax bill for the previous tax year), and the second is due on 31 July. It's meant to help you spread your payments out during the year – and simultaneously provides the Exchequer with a financial boost in the middle of the year.

How do payments on account work?

Payments on account kick in once your tax bill in any year exceeds £1,000 and less than 80% of the tax assessed is collected through PAYE. 

Each of the two payments on account will normally be equal to 50 per cent of your previous tax bill, please see below an example of exactly how this works.

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

 You made two payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2025 is £2,700. This includes:

  • The ‘balancing payment’ of £1,200 for the 2022 to 2023 tax year (£3,000 minus £1,800 already paid on account).


  • The first payment on account of £1,500 (half your 2023 to 2024 tax bill) towards your 2024 to 2025 tax bill.


  • The second payment on account of £1,500 by midnight on 31 July 2024


If your tax bill for the 2024 to 2025 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2025.

Payments on account will include Class 4 National Insurance Contributions where applicable, but not student loan repayments or Capital Gains Tax.

How to pay with payment on account

If you complete your Self-Assessment online, as most people do these days, you will be given the opportunity to make the payment on account at the same time as your balancing payment for the previous tax year.

If you file your return on paper, you will receive a paper bill along with a Bank Giro form that you can use to make a payment. You can also pay by BACS from your bank account, if choosing this option ensure that you use your UTR number as your reference to ensure any payments you make are correctly attributed to you tax account.

Reducing your payment on account

Income for the self-employed often fluctuate from year to year.  If you think that your income for the next tax year will be lower than in the previous tax year, you can apply to have your payment on account reduced.

You can reduce payment on account by logging in to your online HMRC account and clicking 'Reduce payments on account'.  Alternatively, you can send form SA303 to your tax office.

In practice, many people choose to do this if they are having trouble paying their tax bill.  Some individuals reduce their payment on account, presuming that they will be in better financial shape later, and will therefore find it easier to settle the remainder of their bill.  

A word of caution here if you do apply to reduce your payment on account and it turns out that you have underpaid any underpayments will be subject to interest which can significantly increase your tax bill.  All you are really doing is kicking the can down the road and delaying the pain, rather than eliminating it altogether.

Check your payments on Account.

It can be a confusing topic, so best practice is to make regular checks, well ahead of any deadlines, and contact HMRC if you're unsure.

You can check your payments on account online during the year by signing into your Government Gateway account and selecting the option to view your latest Self-Assessment return.

Click 'View statements' and you'll see any payments on account you've already made, alongside the payments you need to make towards your next tax bill, if applicable.

As with all tax matters, if you are confused you should contact your accountant or HMRC directly for advice.

What to do of you cannot pay your tax when due.

 If you are having trouble paying, it is important that you act quickly.  Call the HMRC Payment Helpline on 0300 200 3822 to enquire about setting up a time to pay arrangement.

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