What is a payment on account?

Payments on account are advance payments made by self-employed, self assessment workers towards their future tax bill.

These payments are paid to HMRC twice a year––on 31 January and 31 July––and are designed to help spread the cost of your tax bill.


They are calculated based on your previous year's tax bill (including national insurance if you’re self-employed) and each payment is about half of that previous year's bill.

But, for anyone newly self-employed who has just submitted their first tax return, your first tax bill can be much higher than expected, because you have to pay both the previous year's tax bill, as well as half of next year's tax bill by 31 January. This would be your first payment on account, and after that initial bill, you'll be spreading the payments every six months, so it helps with budgeting for tax.  

 

Do I have to pay HMRC any payment on account?

Not everybody needs to make payments on account. Some people just need to pay what they owe by 31 January after the tax year ends.

HMRC will only ask you to make payments on account if: 

  1. Your last self-assessment tax bill was more than £1,000; and,
  2. You haven’t already paid more than 80% of the tax you owe at source (for example if you've paid this through PAYE).

If you need to make payments on account, HMRC will tell you this on your self assessment statement.

 

When do I need to make a payment on account?

If you need to make payments on account, you need to do this twice a year before midnight on:

  • 31 January
  • 31 July

How do I make a payment on account?

We make payments on account super easy for you.

Log in to the untied app to make a secure payment to HMRC, and read more about paying with untied here.

If you're not already an untied user, you can signup here

You can also make a payment via the HMRC website.

 
Can I reduce my payment on account?

Because ‘payments on account’ are based on your previous year’s tax bill, HMRC is predicting that your current income will be at least equal to your past income. However, if your income has reduced you can apply to have your payments on account reduced too. Many people may be in this situation if their business profits have been hit by COVID-19 but it’s important to remember that coronavirus support payments need to be factored in as taxable income.

Typical reasons for asking HMRC to reduce your payments on account include: 

  • Your business profits are down
  • Your other income has gone down
  • Your tax allowances and reliefs have gone up
  • The tax you have deducted from income at source is more than it was in the previous tax year, for example, if you've moved to doing more full time employment. 

You can ask HMRC to reduce your payments online or by post.

HMRC will ask you to confirm the reduced amount you want to pay. This should be equal to half the tax and class 4 national insurance you expect to have to pay for the year.

 

How can untied help?

untied gives you the tools, information, and support to help you make the tax choices that are best for your circumstances. We’re on a mission to make taxes fast, fair, and simple. You can sign up for a free untied account by clicking here.

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