What are payments on account for Self-Assessment and how are they calculated?

Payments on account are advance payments towards your next year's tax bill. HMRC requires them if your Self-Assessment tax bill is £1,000 or more and less than 80% of your tax was collected at source (e.g. through PAYE).

How they work:

Each payment on account is 50% of your previous year's tax bill. There are two payments:

• First payment on account: Due 31 January (during the tax year)
• Second payment on account: Due 31 July (after the tax year ends)

Example:

If your 2023/24 Self-Assessment tax bill was £4,000, your payments on account for 2024/25 would be:

• 31 January 2025: £2,000 (first payment on account)
• 31 July 2025: £2,000 (second payment on account)

When you file your 2024/25 return (by 31 January 2026), if your actual bill is £5,000, you would have already paid £4,000 through payments on account. You would then pay the remaining £1,000 as a balancing payment by 31 January 2026.

What if your income has dropped?

If you expect your tax bill to be lower than the previous year, you can apply to reduce your payments on account through your online Self-Assessment account. However, be cautious. If you reduce them too much and your actual bill is higher, HMRC will charge interest on the underpayment.

First year of Self-Assessment:

In your first year, you will not have payments on account to make. However, on the following 31 January, you may need to pay your full tax bill for the year plus the first payment on account for the next year. This can result in a large bill, so it is wise to budget accordingly.

Tip: Set aside approximately 30% of your self-employed profits in a separate savings account throughout the year to cover your tax bill and payments on account.