Payments on account can be confusing, particularly if you are completing a Self Assessment tax return for the first time. Instead of paying only the tax you owe for the previous year, HMRC may require you to make advance payments towards your next tax bill. Understanding how the system works can help you plan your finances and avoid unexpected bills.

What are payments on account?

Payments on account are advance instalments towards your next Self Assessment tax bill. They generally apply when your previous year’s relevant tax liability is more than £1,000 and less than 80% of your tax was already collected at source, such as through PAYE.

Each payment is normally 50% of your previous year’s relevant tax bill. This allows your tax liability to be spread across the year rather than leaving everything until one deadline.

When are payments on account due?

There are normally two payments on account each year. The first is due by 31 January, while the second is due by 31 July.

If your actual tax liability is higher than the amount you have already paid, you will usually need to make a balancing payment by the following 31 January.

This can make January particularly expensive because you may need to pay the balance from the previous tax year while also making your first payment towards the next year.

How are they calculated?

For example, if your relevant Self Assessment tax liability is £4,000, each payment on account would normally be £2,000.

If your final tax liability for the following year is £5,000, you will already have paid £4,000 through your advance payments. The remaining £1,000 would then be payable as a balancing payment.

This is why understanding payments on account is important, especially if your income changes significantly from one year to another.

Can you reduce payments on account?

If you reasonably expect your current year’s tax liability to be lower, you may be able to ask HMRC to reduce your payments on account. However, you should make sure your estimate is realistic.

Reducing your payments too much could leave you with a larger balancing payment later. Interest may also become an issue if you have paid too little.

You can find further information about the system through the official GOV.UK guidance on payments on account.

Why planning matters

For self-employed people, landlords and others completing Self Assessment, setting aside money for upcoming tax payments can make a significant difference to cash flow.

At Care Accountancy, we can help you understand your tax position, prepare your Self Assessment return and plan for upcoming payments on account. If your income has changed, we can also help you review whether your expected tax liability needs further consideration.

For professional support, contact Care Accountancy and let our team help you stay organised and prepared.

Conclusion

Understanding payments on account can help you avoid unpleasant surprises and manage your Self Assessment obligations more effectively. Knowing the deadlines, calculation method and available options allows you to plan your finances with greater confidence.

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