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Table of contents
If you’re about to submit a Self Assessment or you’re still fairly new to it, then you might stumble across ‘payments on account’. These are basically advance payments that you make towards your self-employed tax bill, but not everyone needs to make them.
To help you plan ahead and manage your cash flow, we explain what payments on account are, who has to pay them, and how to budget for them.
When you work for yourself, the money you earn isn’t taxed at source like it is when you earn money from an employer. Instead, self-employed people are responsible for reporting and paying tax on their personal income through Self Assessment.
Paying your Self Assessment tax bill is normally an annual event, but to support self-employed people HMRC introduced payments on account to spread the cost of paying tax. That said, it can sometimes feel more like a financial hit than help if you weren’t expecting it.
It’s worth noting that payments on account include Class 4 National Insurance contributions, but not Capital Gains Tax or student loan repayments.
If you fall under either of the following categories, you will most likely need to make payments on account towards your tax bill:
To clarify, this means that if you owe less than £1,000 to HMRC in Income Tax, or if more than 80% of your tax bill has been collected at source, you won’t be liable to make payments on account.
HMRC will look at your tax bill, and assume you’ll earn the exact same amount next tax year. They’ll split that amount in two to work out what each payment on account should be.
The thing about payments on account that catches lots of people out is the timing of them. This is usually the point at which people start to feel like they’re drowning in numbers, so we’ll explain it in stages.
01
The normal deadline for submitting your Self Assessment return and paying the bill is 31st January (the one that comes after the end of the tax year it relates to).
02
For example, the 2024/25 tax year ends 5th April 2025. The deadline to submit your return and pay the bill for the 2024/25 tax year is 31st January 2026.
03
The following tax year, which in this example is 2025/26, won’t have finished by that point, so you won’t have submitted a tax return for it.
04
Even so, HMRC assume that you’ll earn the same amount as you did in 2024/25, and ask you to pay the equivalent of half of 2024/25’s bill as an advance payment towards 2025/26.
05
The deadline for that first advance payment is 31st January 2026. Yep, the same deadline for paying your 2024/25 tax bill, so it might be a bit of a shock.
06
You can see why that can be quite stressful!
07
The deadline for paying the second half is 31st July in the same year.
Here’s the kicker: HMRC calculates your payments on account on the assumption that next year’s profit will be the same as this year’s, so if you actually earn less, you’ll pay more tax than you need to. OK, so you’ll get that back as a tax rebate, but it can cause problems for your cash flow.
This is where meticulous bookkeeping and accounting can swoop in the save the day. If you practice good bookkeeping habits, you should be able to spot you’re going to make less profit than predicted. You can then inform HMRC of this, and they’ll adjust your payments on account accordingly.
But do beware! If you make an error and end up paying too little tax as a result, HMRC will collect what’s owed and in some cases, additional interest on top. You can request a change to your payments on account either online or by post.
There are two payments on account deadlines that you need to be aware of.
Missing these deadlines, or any HMRC deadlines in fact, is never advisable and likely to result in penalties. If you’re really struggling, contact HMRC as soon as possible!
With the Making Tax Digital (MTD) changes underway and the approach of MTD Income Tax (MTD IT), many business owners are wondering how this impacts payments on account.
Although Making Tax Digital will see many changes come into play, payments on account are one of the things that will remain the same. So no, MTD will not affect payments on account or the deadlines by which you’re expected to pay them. This is expected to remain the case for the foreseeable future.
Making Tax Digital (MTD) is a government scheme that aims to simplify how business owners manage their taxes. The initiative is being rolled out in phases, including Making Tax Digital for Income Tax Self Assessment, which will change how self-employed people report income and expenses.
As of 6th April 2026, MTD ITSA rules will become compulsory for those earning over £50,000 through self-employment or property. The threshold reduces to £30,000 from April 2027.
Once you’re set up for MTD, you’ll swap the traditional Self Assessment Tax Return for digital financial records that you’ll submit to HMRC on a quarterly basis using compatible software. You will also be required to submit a final tax return for the year.
Settling your payments on account is simple and is largely similar to paying your tax bill any other time, including:
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