Payments on account

What are payments on account?

The normal deadline for paying your Self Assessment tax liability is the 31st January following the end of your tax return period. For example, your tax liability for the tax year ended 5 April 2024 would be due 31 January 2025.

However, sometimes taxpayers need to make upfront estimated instalments – referred to as 'payments on account'

Who needs to pay using the payments on account regime?

Anyone whose tax liability exceeds £1,000 unless more than 80% of their liability is collected through their tax code.

How do they work?

There are two payments each tax year. They are calculated as 50% of the liability for the previous tax year.
The payment due dates are 31st of January in the relevant tax year and 31st July following the relevant tax year.
For example, if your liability for the tax year ended 5 April 2024 was £2,000, HMRC would expect two payments on account for the following tax year (ended 5 April 2025) as follows:
- £1,000 on 31 January 2025
- £1,000 on 31 July 2025

What happens if the payments on account are too much or too little?

In the example above, let’s say your liability for the tax year ended 5 April 2025 is only £1,500. When you submit your tax return for that year, this would trigger a credit of £500.

Alternatively, let’s say the liability for the year is actually £2,500, and you have only made payments on account of £2,000, the remaining £500 (referred to as a ‘balancing payment’) would be due at the normal deadline date for income tax – being 31 January 2026 (i.e. the January after the tax year ends).

The above test is then repeated to calculated the payments on account for the tax year ended 05 April 2026.

The first year of entering the regime is the worst

The reason for this is that because you haven’t been paying payments on account previously, you end up having to pay all the tax for your first tax return and your first payment on account towards the following tax year on the same date.

For example, say your first tax return is for the tax year ended 5 April 2024 and the liability is £2,000. You will be due to pay that £2,000 on the normal deadline of 31 January 2025 but it also triggers your entry into the payments on account regime for the tax year ended 5 April 2025 with two payments of £1,000 each on 31 January 2025 and 31 July 2025.

This means you end up with a total of £3,000 on 31 January 2025.

As long as you then stay within the regime, it becomes more consistent and lets say your tax liability for each year stays at £2,000, you would end up making payments of £1,000 each July and January thereafter.

Are they fair?

It may feel unfair – particularly in the first year when it feels like you are paying 150% of your tax liability. However if you think about it, you have had the benefit of that money for quite a few months (as much as 22 months after you earned the money) when most employees have to pay the tax on their income in the month they earn it.

Can you reduce them?

You can apply to reduce them if you think your tax liability is going to be less than the year before however HMRC will charge you interest if you reduce them by too much. There are also technically penalties, however, these are rarely enforced.