How does HMRC calculate Self Assessment payments on account?

Full answer

The payments on account calculation is mechanical and backward-looking -- HMRC does not try to forecast your current year's income, it simply takes your most recently filed tax bill and splits it in two. **The calculation** HMRC takes your total Income Tax and Class 4 National Insurance liability from your most recently filed Self Assessment return (the "relevant amount"), then divides it by two to set each payment on account for the following tax year. Crucially, this excludes Capital Gains Tax, Student Loan repayments, and Class 2 National Insurance -- these are collected separately as part of the balancing payment, not spread across payments on account. **The £1,000 / 80% trigger** You are only required to make payments on account if two conditions are both met: your Self Assessment bill (excluding CGT and Student Loan) was more than £1,000, AND less than 80% of your total tax for that year was already collected at source (for example via PAYE). If most of your tax is already deducted through your employer's payroll, you may not need to make payments on account even with significant total tax liability, because the 80%-collected-at-source condition is not met. **Worked example** Rohan's 2024/25 Self Assessment return shows Income Tax of £5,000 and Class 4 NI of £1,000, a total of £6,000 (his return also shows £800 of Capital Gains Tax, which is excluded from this calculation). Because £6,000 is over £1,000, and none of it was collected via PAYE, HMRC sets two payments on account of £3,000 each for 2025/26, due 31 January 2026 and 31 July 2026. The £800 CGT from 2024/25 is instead due as a lump sum by 31 January 2026 alongside the first payment on account, not spread across the year. **What if you have both self-employment and PAYE income?** If a meaningful share of your total tax is already collected through PAYE (for example you have a part-time employed job alongside self-employment), and this share reaches 80% or more of your total liability, you may be exempt from payments on account even though you file Self Assessment -- HMRC applies the 80% test automatically based on your return. **Why the calculation can feel unfair in a falling-income year** Because the calculation is based purely on LAST year's figures, someone whose income has fallen significantly can be asked to prepay based on a higher historic income -- this is exactly the situation the "reduce payments on account" process (form SA303 or online) is designed to address, letting you align payments with a realistic current-year forecast rather than an outdated higher figure. **Practical tip** Check your HMRC self-assessment statement each year to see exactly how your payments on account were calculated, and query anything that looks wrong (for example if CGT or Student Loan has been incorrectly included) before the deadline arrives.

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More answers

• What is a payment on account for Self Assessment?
• How do I reduce my Self Assessment payments on account?