Understanding Payments on Account for Self Assessment Tax Returns

If you’ve ever filed a Self Assessment tax return, you might have come across the term “payment on account” and wondered what it means. It can feel confusing at first, but once you understand the basics, it makes sense.

What is a Payment on Account?

Payments on account are advance payments towards your next year’s tax bill. HMRC asks for these because most self employed people don’t pay tax through PAYE, so this system helps spread the cost.

Instead of paying all your tax in one go, you make two payments during the year to cover the following tax year.

When Do You Have to Make Them?

You’ll need to make payments on account if:

Your tax bill for the year is more than £1,000, and
Less than 80% of your tax is collected through PAYE.

If you meet these conditions, HMRC will automatically include payments on account in your Self Assessment calculation.

How Are They Calculated?

Each payment on account is 50% of your previous year’s tax bill (excluding student loan repayments and Class 2 National Insurance). For example:

If your 2024/25 tax bill is £2,000, you’ll pay:
- £2,000 by 31^st January 2026 (for 2024/25)
- £1,000 by 31^st January 2026 (first payment on account for 2025/26)
- £1,000 by 31^st July 2026 (second payment on account for 2025/26)

What If Your Income Changes?

If you expect your income to drop, you can apply to reduce your payments on account. Be careful though, if you reduce them too much and end up owing more, HMRC will charge interest.

Key Dates to Remember

31^st January – Pay your previous year’s tax bill and first payment on account.
31^st July – Pay your second payment on account.

Final Balancing Payment

When you file your next tax return, HMRC will compare what you’ve paid on account with your actual tax bill. If you’ve paid too much, you’ll get a refund. If you’ve paid too little, you’ll need to pay the difference by the next 31^st January.

Tip: Always set aside money for these payments so they don’t catch you by surprise.

Need Help with Self Assessment?

If you’re unsure about payments on account or want to make sure your tax return is accurate, get in touch today. I’ll take the stress out of Self Assessment and make sure everything is handled correctly.

Email: contact@jbaccounts.co.uk
Visit: jbaccounts.co.uk

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