.jpg)
Payments on account are advance payments toward your income tax and Class 4 National Insurance contributions (NICs) for the current tax year, based on the previous year's tax liability. They apply to self-employed individuals, freelancers, or others with untaxed income (e.g., from dividends or property) who file a Self-Assessment tax return.
You’re required to make payments on account if:
Payments are due in two equal instalments:
January 31: First payment, alongside any remaining tax owed for the previous tax year.
July 31: Second payment.
Each payment is typically half of your previous tax year’s income tax and Class 4 NICs (after deducting any tax paid at source, like PAYE).
For example, if your 2023-24 tax bill was £10,000, you’d pay £5,000 on January 31, 2025, and £5,000 on July 31, 2025, toward your 2024-25 tax year.
Adjustments: When you submit your Self-Assessment return (by January 31 of the following year), HMRC calculates your actual tax liability:
Reducing Payments: If you expect your income to be lower this tax year, you can apply to reduce your payments on account via your HMRC online account, form SA303 or on the tax return submission. Be cautious: underestimating can lead to interest on unpaid tax.
Exemptions: You won’t need to make payments on account if:
Interest and Penalties: Late payments incur interest (currently 8.25% per year as of June 2025). Incorrectly reducing payments on account may also lead to interest if you underpay.
Capital Gains Tax (CGT): Payments on account don’t include CGT, which is settled separately when you file your return.
Check Your Status: Use your HMRC online account or contact HMRC to confirm if you’re required to make payments on account.
I think I have paid too much tax, what can I do?
Please get in touch with your accountant as soon as possible. It is normally possible to reduce the payment on account, if your tax return for the year ended 5th April 2025, is completed prior to the deadline of 31st July 2025. If you make payment of the liability now and your calculated liability is less than the payments on account made, a refund can be requested when the tax return to 5th April 2025 is submitted.
I don’t think I have paid enough tax, what can I do?
The current payment on account is calculated based on the tax return submission for the year ended 5th April 2024. Any additional tax due for the year ended 5th April 2025 will be due by the 31st January 2026, along with a payment on account of the year ended 5th April 2026, if required.
This is my first year doing a tax return, why is it so high?
If the first tax return you complete is for the year ended 5th April 2025, and the liability exceeds £1,000, you will have to pay the full liability owed by 31st January 2026, plus a payment on account of the year ended 5th April 2026, equal to 50% of the liability for the year ended 5th April 2026. We strongly recommend that when taking dividends or drawings from your business account, you factor in the tax that may be payable at the year end and save this in a separate savings account. In addition, completing your tax return as early as possible into the next tax year (after 6th April) means you have plenty of time before the payment is due, the following January.
Setting aside the below amounts every time you withdraw sole trader profits or dividends, should ensure you have sufficient savings to cover any personal tax liabilities, when the payment becomes due. The amounts are over-cautious but also mean that should be able to create a surplus and receive interest on the amounts saved.
The above is a general guide based on average returns. Please speak with your dedicated accountant if you would like a more personalised estimate based on the amount you intend to take in the current tax year.
Please remember that Income Tax payable on a Self Assessment Tax Return is a personal liability and if you are a company director, any liabilities should be paid from personal funds, not the company.
Any payments on account made last year on account of the tax return ended 5th April 2025, will be offset against the tax liability for the year ended 5th April 2025. If you earned a similar level of income in the year ended 5th April 2025 as you did for the year ended 5th April 2024, once you have made the second payment on account in July 2025, you will only need to pay the balancing tax by 31st January 2026, along with the first payment on account for the year ended 5th April 2026.
Please check with your dedicated accountant or log into your personal tax portal, for an up-to-date summary.
Sign up to Clever Accounts and get fixed fee hassle-free accounting
.jpg)
