Payments on Account?
Payments on account are advance payments towards your next Self Assessment tax bill. They commonly apply to sole traders, landlords, partners, company directors receiving dividends and people with other income that has not been taxed at source.
Two payments are normally required each year:
- 31 January
- 31 July
The January payment is made alongside any balancing payment due for the tax year already completed. This is why the January bill can sometimes be much higher than expected.
How Are Payments on Account Calculated?
Each payment is normally 50% of the previous year’s relevant Self Assessment tax liability.
For example, if your tax bill for the year was £10,000, HMRC may request:
- £5,000 by 31 January
- £5,000 by 31 July
Once your next tax return is completed, HMRC compares the actual liability with the payments already made. If you have paid too little, a balancing payment will normally be due the following January. If you have paid too much, the difference may be refunded or set against another tax liability.
Who Has to Make Them?
Payments on account are normally required where your previous Self Assessment bill was more than £1,000 and less than 80% of your total tax was collected at source, such as through PAYE.
They may apply to income from self-employment, property, partnerships, dividends or other untaxed sources. They are not normally required where the previous bill was £1,000 or less, or at least 80% of the tax was collected at source.
Can They Be Reduced?
You can apply to reduce your payments on account if you reasonably expect your next tax bill to be lower.
This could happen because business profits, rental income or dividends have fallen. However, the reduction should be based on a realistic estimate. If payments are reduced too far, HMRC can charge interest on the shortfall.
Why Completing Your Return Early Helps
Completing your Self Assessment early shows whether the July payment is reasonable and gives you more time to prepare for January.
Payments on account are easier to manage when expected. They can otherwise place pressure on cash flow, particularly where income fluctuates.
Check your HMRC account regularly, budget for both deadlines and review the position if your income changes. Knowing the amount in advance makes it easier to avoid surprises and manage your finances confidently.
