Glossary · UK
What is Payment on Account?
Advance tax instalments paid in January and July toward your next Self Assessment bill, each equal to 50% of the prior year's tax liability.
Full Definition
Payments on account are advance payments toward your current-year Self Assessment tax bill. HMRC requires them when your previous year's tax liability exceeds GBP 1,000 and less than 80% of that tax was collected at source through PAYE or other withholding. Two equal instalments are due: the first by 31 January during the tax year (alongside the balancing payment for the prior year), and the second by 31 July after the tax year ends. Each instalment equals 50% of the prior year's total income tax and Class 4 National Insurance bill -- excluding Capital Gains Tax and student loan repayments, which are not included in the payments on account calculation. If you believe your current-year income will be lower than the prior year, you can apply to reduce your payments on account (SA303 form or via Government Gateway). If you reduce them too aggressively and the actual liability is higher, HMRC charges interest on the shortfall from the original due date. If payments on account overshoot your final liability, the excess is credited against the balancing payment or refunded. Payments on account are a common cash-flow surprise for those newly self-employed or when income rises sharply -- in the first year of Self Assessment, you may face both a full year's tax and 50% upfront for the next year simultaneously, all by 31 January.
How Payment on Account is calculated
Each instalment = Prior year tax liability x 50%- Prior year tax liability
- Total income tax and Class 4 NI from the previous Self Assessment return, excluding CGT and student loan.
Worked example: If your 2024/25 Self Assessment bill is GBP 8,000, you pay GBP 4,000 on 31 January 2026 and GBP 4,000 on 31 July 2026 as payments on account toward 2025/26.