Glossary · UK
What is Payment on Account (Self Assessment)?
Advance payments toward next year's Self Assessment tax bill, each equal to half of the previous year's liability, due by 31 January and 31 July, required unless that liability was small or mostly collected through PAYE.
Full Definition
Payments on account are advance instalments toward a Self Assessment taxpayer's next tax bill, designed to keep HMRC's collection of income tax and Class 4 National Insurance broadly in step with the year the income is actually earned, rather than the whole liability falling due many months in arrears. Anyone whose Self Assessment bill for the previous tax year exceeded £1,000, and where less than 80% of that liability was already collected at source (for example through PAYE tax codes), is normally required to make two payments on account toward the following year's bill, each set at exactly half of the previous year's total Self Assessment liability, due on 31 January (alongside that year's balancing payment) and 31 July. Because payments on account are based on the prior year's figures, they can significantly overstate or understate the actual liability for a year in which income changes substantially -- someone whose self-employed profits fall can apply to HMRC to reduce their payments on account to a more realistic figure, avoiding paying (and later reclaiming) tax they do not actually owe, though reducing the payments too far can result in interest charges if the eventual liability turns out higher than the reduced payments covered. Once the actual tax return for the year is filed, a "balancing payment" (or repayment) settles the difference between the payments on account already made and the real liability, and simultaneously sets the level of the next year's two payments on account going forward. Worked example: a self-employed consultant with a 2025/26 Self Assessment bill of £8,000 must normally pay two payments on account of £4,000 each toward 2026/27, due 31 January 2027 and 31 July 2027; if their 2026/27 return then shows an actual liability of £9,500, they owe a £1,500 balancing payment on 31 January 2028, and their payments on account for 2027/28 are reset to £4,750 each based on the new £9,500 figure -- whereas if profits had instead fallen to a £5,000 liability, they could have applied earlier to reduce the £4,000 payments on account to £2,500 each rather than overpaying and waiting for a refund.