Self-Assessment: Payments of Account

What are Payments on Account?

As a UK self-assessment taxpayer, you’re required to make payments on account to HMRC unless you fall under one of the following categories:

• Your last Self-Assessment tax bill was less than £1,000.
• 80% or more of your tax was deducted at source through PAYE.

Payments on Account (POA) are advance payments that you make twice a year, towards your next year’s Self-assessment tax bill.

The amount you must pay for each POA is half of your previous year's tax bill. HMRC designed this process to help taxpayers stay on top of their payments as well as avoiding paying tax in arrears.

So, if your tax bill for this year is £2,000, then you would have to make two POA totalling £2,000 towards next year’s tax bill.

Your actual tax bill won’t necessarily match this estimate of tax due, as business income generally changes from year to year. This could mean that your POA don’t cover your total tax bill for the year, so you must pay an additional ‘balancing payment’.

If you end up paying too much tax, HMRC will give you the difference back, via cheque or bank transfer or by deducting the difference from your next POA tax bill.

Deadlines for POA

The two deadlines for paying your Self-assessment tax bill are:

Payments on Account – An Example

It is important to know what to expect when making POA, either in your first year of trading or for the first time your tax bill is over £1,000 in a tax year.

Let’s say that you became self-employed in May 2023 and completed your first SATR for the 2023/24 tax year. Your tax bill is £2,500 and is due by 31 January 2025.

Because this is over the £1,000 threshold, in addition to the £2,500 tax payment owed for the 2023/24 tax year, your tax bill will also include your first POA for the 2024/25 tax year of £1,250 (half of your 2023/24 tax bill).

You will pay a total of £3,750 on 31 January 2025.

Your 2^nd POA of £1,250 for the 2024/25 tax year will be due on 31 July 2025.

In total, you will have paid £2,500 towards your 2024/25 tax bill.

When you complete and submit your 2024/25 SATR, and your actual 2024/25 tax bill amounts to £2,000, you will be due a refund of £500 (difference between what has been paid on account £2,500 and your actual tax bill £2,000).

Your next POA for the following tax year 2025/26, is due to be paid on 31 January 2025 and will be £1,000 (half of your actual tax bill for 2024/25).

Balancing Payment

When you submit your tax return it may be that this year’s tax bill is higher than last year’s bill.  This means that you will owe more tax than you have already paid through POA. If this is the case, you will need to make a ‘balancing payment’ to HMRC by 31^st January of the following tax year.

In the example above, if your actual 2024/25 tax bill amounted to £3,000, you would have a balancing payment to make of £500 (difference between actual tax bill £3,000 less paid on account £2,500) by 31 January 2025.

You next POA for the following tax year 2025/26, is also due to be paid on 31 January 2025 and in this example would be £1,500 (half of your actual 2024/25 tax bill).

How to Make Payments on Account

HMRC have several ways that you can pay your Self-assessment tax bill.   See pay your Self-Assessment tax bill.

In Summary

Understanding POA and managing them effectively can help you anticipate your next tax bill.

Submitting your SATR as soon as possible post tax year end, gives you more time to settle any tax due without incurring interest and late payment penalties.