Self Assessment payments on account, explained
Nothing catches new sole traders out quite like payments on account. You work out you owe, say, £3,000, and then HMRC asks for £4,500. The extra isn't a mistake or a penalty. It's an advance payment towards next year's tax. Once you understand it, it stops being a shock and becomes something you can plan for.
What they are
Payments on account are advance instalments towards your next tax year's bill. HMRC assumes you'll earn roughly the same again, so it asks you to pay next year's tax in two chunks rather than all at once later.
When they apply
You have to make payments on account if:
- Your Self Assessment bill for the year is more than £1,000, and
- Less than 80% of your tax was already collected at source (for example through PAYE).
Most full-time self-employed people meet both, so payments on account become a normal part of the cycle after their first year.
How they're calculated
Each payment on account is 50% of your previous year's tax bill. They're due in two instalments:
| Date | What's due |
|---|---|
| 31 January | Balancing payment for last year + first payment on account (50%) |
| 31 July | Second payment on account (50%) |
A worked example
Your 2024-25 bill is £3,000. In January 2026 you pay that £3,000 plus a first payment on account of £1,500 towards 2025-26, so £4,500 in total. Then in July 2026 you pay the second £1,500. By the following January, you've already paid £3,000 towards 2025-26, so you only settle the difference (plus the first instalment towards 2026-27).
The first year is the painful one because you're effectively paying about 150% of a year's tax in one go. After that it evens out, because each January you've already paid half the year in advance.
Reducing your payments on account
The advance payments are only an estimate based on last year. If you know your income has genuinely dropped (you've cut back, lost a client, or a one-off boosted last year), you can apply to reduce them. Be careful, though: if you reduce them too far and end up owing more, HMRC charges interest on the shortfall. Reduce based on a realistic forecast, not wishful thinking.
Planning for them
The trick is simply to expect them. When you work out your tax with the estimator, remember that in your first full year you'll pay roughly one-and-a-half times that figure the following January. Setting aside a bit more than the headline tax, and keeping it somewhere you won't touch, turns the January bill from an emergency into a transfer. For the full set of dates, see Self Assessment deadlines.