If you’ve ever completed a Self Assessment tax return and been surprised by a much bigger bill than expected, chances are Payments on Account are the reason.

Let’s break it down in simple terms.

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What are Payments on Account?

Payments on Account are advance payments towards your next tax bill, requested by HM Revenue & Customs.

Instead of paying your tax in one go, HMRC asks you to pay some of next year’s tax upfront, based on your current year’s bill.

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How do they work?

If your tax bill is over £1,000 and less than 80% of your income is taxed at source (e.g. via PAYE), you’ll usually need to make Payments on Account.

You’ll make two payments:

• 31 January (first payment)
• 31 July (second payment)

Each payment is 50% of your previous year’s tax bill (excluding student loan and capital gains).

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Example

Let’s say your 2024/25 tax bill is £2,000.

• 31 January 2026:
  • £2,000 (your actual tax bill)
  • £1,000 (first payment on account for 2025/26)
• 31 July 2026:
  • £1,000 (second payment on account)

So in January, you pay £3,000 total which is why it catches people off guard.

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What happens next year?

When your next tax return is submitted, HMRC will compare:

• What you’ve already paid (your Payments on Account)
• Your actual tax bill

If you’ve overpaid, you’ll get a refund.
If you’ve underpaid, you’ll need to pay the difference (called a balancing payment).

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Can you reduce Payments on Account?

Yes if you expect your income to drop.

You can apply to reduce them, but be careful:

• If you reduce them too much and underpay, HMRC may charge interest

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When do Payments on Account NOT apply?

You won’t need to make them if:

• Your tax bill is under £1,000
• More than 80% of your income is taxed at source (e.g. employment income)

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Key takeaway

Payments on Account aren’t an extra tax they’re just paying your tax earlier.

But if you’re not prepared, they can seriously impact cash flow.

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Need help planning ahead?

We help business owners and landlords avoid surprises and stay tax-efficient all year round.

📞 Call: 0161 710 1901
📧 Email: Tax@TaxesDoneRight.co.uk
Dm US:
www.taxesdoneright.co.uk