Payments on account are advance tax payments that HMRC requires self-employed sole traders to pay twice a year. This system helps spread the cost of your upcoming Income Tax and National Insurance liabilities across two equal instalments. It applies automatically if your previous Self Assessment tax bill was over £1,000, unless the majority of your tax has already been deducted at source through a standard salary or tax code. 📆
When do payments on account apply?
You will automatically enter the payment on account system if you file a Self Assessment tax return and meet the following criteria:
Your previous year's total tax bill (including Class 4 National Insurance contributions) was over £1,000.
Less than 80% of your total tax liability was deducted at source throughout the year (such as through a separate PAYE employment salary or interest automatically processed by your bank).
Your online HMRC account tax summary will explicitly show if you owe payments on account and detail the exact amounts required. 📋
How are your payments calculated?
HMRC calculates your advance instalments based on the assumption that your business will earn a similar amount of money from one tax year to the next. Because of this, each of the two payments on account is set at exactly 50% of your previous year's final tax bill.
For example: If your total tax bill for the last financial year came to £3,000, you will be required to pay two advance instalments of £1,500 each toward your next tax year.
If your actual income turns out to be higher than estimated when you file your final return, you will simply pay a remaining "balancing payment" to cover the difference by the following January. If you earn less and end up overpaying, HMRC will issue you a refund. ⚖️
When are payments on account due?
Your advance payments are split across two strict deadlines each year:
The first payment: Due by midnight on 31 January (the exact same day as your standard Self Assessment filing and balancing payment deadline).
The second payment: Due by midnight on 31 July. ⏱️
💡 Tip for first-time filers: The very first January after you cross the £1,000 tax threshold can catch many newly self-employed sole traders off guard. On 31 January, you will have to pay your full tax bill for the year that just ended, plus an additional 50% upfront as your first payment on account for the next year. Planning your business cash flow using your live in-app tax estimator and digital tax pot tools ensures you are fully prepared for this milestone.
What if my profits have dropped?
If you know your business income is going to be significantly lower this year—for example, if you lost a major contract or took a break from trading—you can ask HMRC to reduce your payments on account. You can complete this request directly by logging into your official Government Gateway account and selecting the option to reduce your instalments.
However, be careful not to lower them artificially. If your final bill ends up being higher than the reduced amount you claimed, HMRC will charge daily late-payment interest on the difference.
You can securely check your current statements or make an immediate digital payment by heading to the official GOV.UK payments on account guide. ✅