Payments on account are advance payments towards your next Self-Assessment tax bill. They catch many first-time filers off guard — you file your return expecting one bill, and HMRC asks for 150% of it. This guide explains how they work and how to budget for them.
When do payments on account apply?
HMRC requires payments on account if your Self-Assessment tax bill (after deducting tax paid at source, e.g. PAYE) is £1,000 or more, and less than 80% of your total tax has been collected at source.
In practice, this affects most self-employed people and anyone with significant untaxed income (dividends, rental income, etc.).
How much are the payments?
Each payment on account is 50% of the previous year's Self-Assessment liability. There are two instalments:
- First payment: 31 January (same day as your return deadline)
- Second payment: 31 July
A "balancing payment" on the following 31 January settles any difference between the advance payments and the actual liability.
The painful first year
In your first year of Self-Assessment, you pay your full bill for the year just ended plus the first payment on account for the current year — all on 31 January. This means paying up to 150% of one year's tax in a single month. Budget for this from day one.
Can you reduce payments on account?
Yes. If you know your income this year will be lower than last year, you can apply to HMRC (form SA303 or online) to reduce your payments on account. Be careful: if you reduce them too much, HMRC will charge interest on the shortfall.
Tips for budgeting
- Set aside 25–30% of all self-employed income in a separate account
- Remember that the 31 January bill often includes last year's balancing payment + this year's first instalment
- Use a tax calculator to estimate your liability throughout the year so there are no surprises
Further reading
See our self-employed tax guide for a complete overview of self-employed taxes, or the first-time Self-Assessment guide for the filing process.