Payments on Account

Trading as an individual (self-employed) or receiving untaxed income often means you will be required to submit a self-assessment tax return each year (by 31 January following the end of the tax year).

However, in many instances payments on account may also be required. This is an area which can cause confusion for taxpayers.

What are Payments on Account?

Payments on account are advance payments towards the next year’s tax liability.

Each payment is half of your previous year’s tax liability (excluding taxes such as capital gains and student loan repayments), and they’re usually due in two instalments on:

31 January

31 July

To give an example, if your tax liability for the tax year ended 5 April 2025 is £4,000, you’ll be expected to make two payments on account of £2,000 each in January 2026 and July 2026—towards your 2025/26 tax.

Who has to make Payments on account?

You’ll need to make payments on account if:

• Your last Self-Assessment tax liability was more than £1,000
• Less than 80% of your tax was collected through PAYE

If your income is entirely taxed through PAYE, or your tax liability is less than £1,000, you’re usually exempt.

What if income is expected to reduce in the next tax year?

There are instances where income may be higher in one year leading to increased payments on account.

If there is an expectation that income will be lower in the current tax year (and as a result your liability will be lower), you can apply to reduce your payments on account via your online HMRC account or on your tax return.

It is worth noting that should payments on account be reduced by too much HM Revenue & Customs (HMRC) will charge interest on the underpaid tax.

What happens in the first year of Self-Assessment?

When you’re submitting your Self-Assessment tax return for the first time, you might be surprised to find your tax bill is higher than expected.

That’s because HMRC may ask you to make Payments on Account for the next tax year — on top of what you owe now.

In effect, your first payment due by 31 January, following the end of your first tax year of completing your self-assessment tax return, will be 150% of the tax due.

Using the above example, assuming your self-assessment tax year was to 5 April 2025, your tax liability due by 31 January 2026 would be:

Tax liability for year ended 5 April 2025	£4,000
1st payment on account for 25-26	£2,000
Total payment due by 31 January 2026	£6,000

How can we assist?

Payments on account can seem frustrating, especially when your income varies. Understanding how they work helps you to ensure tax liabilities are paid when they fall due, without putting your cashflow under pressure.

If your income is growing, those advance payments can help soften the blow of a bigger liability bill.

We can advise in advance of payments being due, but also assist in applying for reductions when relevant.  

For more information on payments on account and how we can assist, please contact your local Perrys branch.