How does Payment on Account work?

Payment on Account means that you pay tax in two instalments:

• First in January (the usual deadline for paying the tax bill for last year)
• Second in July

It’s usually the self-employed (and very rarely landlords) who have to use Payment on Account.

If you’ve already paid more than 80% of your tax bill by January, don’t worry about Payments on Account. You won’t be charged again in July.

Why is my first Payment on Account so high?

Basically, in your first year, you have to pay 150% of your tax bill in one go.

For example:

1. Your tax bill for 2024/25 is £5,000
2. You’ll need to pay this in full by January 31st 2026
3. You also need to pay an additional advance payment of £2,500 (50% of £5,000) at the same time
4. You have to pay another £2,500 by July 31st 2027

What if my income is smaller next year?

You can ask the HMRC to reduce your payment.

Either:

• Log in to your HMRC online account and select “Reduce Payments on Account”
• download, print, and send the SA303 form to your tax office.

However, we recommend you pay the Payment on Account as it is.

If your profits are indeed down, then HMRC will refund you the difference.

What if my income is higher next year?

You will be required to make a balancing payment by January 31st next year so your account is up to date.

How to check what to pay

Log in to your online account and click “View statements”.

You can find information on:

• payments you’ve made already
• your next payments.

Is it optional?

No.

Once you submit your Self Assessment tax return, you are automatically enrolled in it.

The only exceptions:

• You’ve already paid 80% or more of the total tax amount you owe (for example, through PAYE)
• Your tax bill from Self Assessment was under £1,000.

If you don’t pay tax through PAYE, you’re self-employed and your tax bill is more than £1,000, you’ll have to pay tax again in July.

Here’s a visual guide to help you understand a little better.