Payments on Account Explained: What You Need to Know

If you’re new to Self Assessment, you might be surprised by something called Payments on Account. These are advance payments towards your next tax bill — and if you’re not prepared, they can take a serious toll on your cash flow.

👤 Who Needs to Pay?

You’ll usually have to make Payments on Account if:

• Your tax bill is over £1,000, and

• Less than 80% of your tax has already been collected through PAYE.

This often applies to the self-employed, landlords, and anyone with untaxed income.

💷 How Payments on Account Work

• You make two instalments each year:

  • 31 January (alongside any balancing payment due for the previous year)

  • 31 July

• Each instalment is half of your previous year’s tax bill.

👉 Example: If your 2023/24 tax bill is £4,000, you’ll pay:

• £4,000 (balancing payment for 2023/24) + £2,000 (first instalment for 2024/25) by 31 Jan 2025

• £2,000 second instalment by 31 July 2025

⚠️ Common Issues

• The “Double Bill” in January: First-time payers often face paying both the previous year’s bill and the first instalment for the next year at the same time.

• Overpayments: If your income falls, you might overpay — but you can claim a refund or request to reduce future instalments.
  

💡 Tips to Stay Ahead

• Budget throughout the year for both the tax bill and the advance instalments.

• File early so you know what you owe well before the deadlines.

• Adjust payments if your income has dropped — HMRC allows you to apply for a reduction.

✅ Conclusion

Payments on Account are designed to keep you on track with your tax — but without planning, they can feel like an unexpected shock. By budgeting ahead and filing early, you’ll avoid surprises and keep your finances under control.